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China says banks are in good shape, boosting economy

(Agencies)
Updated: 2009-02-26 19:51

China's banks are in good shape to ride out the global financial crisis and have provided a crucial boost to the domestic economy through a surge in lending, the banking regulator said on Thursday.

Related readings:  Banks urged to extend loan period for small firms  Banks face risk in credit expansion  Banks get approval for bond trading

Liu Mingkang, chairman of the China Banking Regulatory Commission, mixed his confident overview of the country's banking sector with a pledge that the government would act firmly to prevent a rise in bad debt.

That vigilance will include careful examination of new loans by Chinese banks, along with tighter regulation of their overseas investments, a source briefed on the plans said.

China's banks made 1.6 trillion yuan ($234 billion) in new loans in January, a monthly record, after strong loan growth in the last two months of 2008 as well.

Some analysts have expressed concern that the rush of lending could swell bad debts on banks' books, but Liu said the ample credit would give a lift to the economy and was nothing to be worried about.

"Our general analysis and investigations have proven that the fundamentals are normal," he told a news conference in Beijing.

He also struck an upbeat note on the health of Chinese banks at a time when many of their international counterparts have seen balance sheets battered by plummeting asset values and have turned to investors and governments for capital injections.

"Generally speaking, this financial crisis has limited impact on the Chinese banking system and the risks along with it are under control," Liu said in a statement.

The amount of bad debt on the books of Chinese banks fell sharply in 2008, with the sectors' overall non-performing loan (NPL) ratio dropping to 2.45 percent, down 3.71 percentage points on the year.

Analysts had said that the fall was mainly caused by the write-off of 800 billion yuan in sour loans at the Agricultural Bank of China, the last State bank to receive a government bailout.

Liu effectively confirmed that, saying the NPL ratio dropped only 0.84 percentage points when stripping out the effects of reform of the Agricultural Bank of China along with special measures to ease financing in the areas of southwest China hit by an earthquake last May.