(Yicai Global) Feb. 2 -- After some lenders in Beijing hiked interest rates on operating loans, banking sector insiders told Yicai Global that it may have been a response to new regulatory probes aimed at preventing such loans from flowing illegally into the real estate market.

“Current rates for operating loans are up from the fourth quarter of last year,” said an official in charge of the individual loan division at the Beijing branch of a joint-stock bank. “The interest rates on some small business loans were below 4 percent last year, but have risen above 4 percent.”

Adjustments to loan rates are underway and slight increases are expected, a staffer at the head office of another joint-stock bank told Yicai Global.

The higher rates may have something to do with the financial regulators' enhanced supervision to prevent illegal use of the loans in the property market. The watchdogs will form a joint investigation team to probe the issue and any violations will by harshly punished, the Beijing branch of the China Banking and Insurance Regulatory Commission said in a notice released on Jan. 30.

The increases will narrow the gap between the rates for operating loans and those for property market-related loans, helping to shrink the room for arbitrage and prevent use of the loans in the real estate market, Zhou Maohua, an analyst at China Everbright Bank's financial market division, told Yicai Global.

“Apart from some of the joint-stock banks in Beijing, there were no big changes to the rates on operating loans issued by banks elsewhere,” another insider told Yicai Global, also adding that the rate hikes “may have something to do with the enhanced regulations from the local [Beijing] watchdog.”

“Adjustment of loan rates is normal market behavior,” Everbright's Zhou said. “The recent rise in operating loan rates is partly because of expectations of tighter monetary policy and because rising market interest rates caused an increase in banks' borrowing costs.”

But there is limited leeway to increase the rates for operating loans, Zhou noted, partly because stability is still China's top monetary policy priority this year, and also because increasing the rates too much would push up the costs of financing for the real economy and undermine the market competitiveness of the banks themselves.

Editors: Tang Shihua, Tom Litting