Central bank governor has cautioned against an overly rapid rise in prices and investment in relief and recovery after the May 12 earthquake.

"We must mainly focus on the operation of China's economy after the quake. While meeting the demand of enterprises in quake relief, we should ensure the implementation of macro-control measures," said governor Zhou Xiaochuan of the People's Bank of China (PBC).

He made the statement when visiting a PBC management office in the southwestern Chongqing municipality on Monday, according to a PBC press release on its website.

Chinese banks have been told to help quake victims and relief work by lifting credit lines, extending loan maturities and the timely writing off of bad loans in the quake zone.

Analysts fear the moves could further test the government's tight monetary policy to curb inflation and fixed-asset investment.

The PBC has earlier added 7 billion yuan (US$1 billion) of re-lending quotas to financial institutions in quake-hit regions, in an effort to increase lenders' liquidity and support their credit supply to quake relief and reconstruction work.

Chinese banks had extended more than 6.5 billion yuan in loans by May 21 and agreed to lend a total 82.66 billion yuan (US$11.9 billion) to the hardest-hit southwestern province of Sichuan.

"Local PBC branches should assess the losses and business situation of banking institutions hit by the quake and the influence of quake-incurred bad loans on their operation," said Zhou.

Chinese banks have been ordered to promptly write off loans that can't be repaid because borrowers in the quake zone suffered huge losses that can't be covered by insurance, or if the insurance or guarantees are not enough for the debt.

Rapidly writing off bad loans would reduce profits in the short term, as the bad loan provisions were taken from the banks' own profits, said Wang Yunquan, director of the China Banking Regulatory Commission's Sichuan bureau.

However, that was necessary for the lenders to maintain their true financial status and their asset quality, said Wang.

"If the losses are not promptly written off, the banks' asset quality grading would be affected," said Wang.

Banks must retain records of bad loans after the cancellation and keep the write-off confidential, said the CBRC.

Wang said the verification of bad loans was complex, and he vowed to crack down on fraud in the process.

(Xinhua News Agency May 27, 2008)