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Regulator urges banks to focus on risk management

By Wang Bo (China Daily)
Updated: 2009-09-19 13:29

Worried that the rapid credit growth this year might aggravate risks for the banking sector, China's top banking watchdog on Friday reiterated that domestic lenders should enhance their risk management capacity and adhere to regulatory requirements.

"With bank loans growing rapidly, all kinds of risks are rising in the banking industry," Liu Mingkang, chairman of China Banking Regulatory Commission, said in the statement posted on the regulator's website.

Related readings:  It's time to adjust monetary policies to slow loan expansion  Regulator urges banks to be cautious in lending  China July new lending slows to 355.9b yuan  China's CPI falls, lending spree eases  Liquidity crunch, loan limits stop market rally

Chinese banks advanced 8.15 trillion yuan in new loans in the first eight months, far higher than the 4.91 trillion yuan it extended during the same period last year, sparking wide concerns of rising default risks at banks and asset bubbles in the capital market.

Liu said the ongoing global financial crisis has triggered a worldwide reflection on overhauling the financial supervision system, which includes revising and improving rules on capital adequacy, provision, leverage ratio, liquidity, as well as corporate governance and compensation system.

Chinese banking industry should strengthen their compliance management and get prepared to follow up the upcoming changes among the global financial institutions, the statement said citing the chairman's remarks at an annual banking conference on compliance management in Shanghai.

In face of the explosive lending growth this year, CBRC has been urging banks to stick to the regulatory requirement for capital adequacy and be vigilant on signs of rising bad loans.

Earlier this month the regulator announced plans to implement stricter capital requirements for lenders, forcing them to deduct holdings of subordinated bonds issued by other banks from their supplementary capital over the next few years.

Many Chinese banks have promised to slow down lending in the second half. With new loans reaching 410.4 billion yuan in August, the flood of lending has been eased so far, echoing Liu Mingkang's recent remarks that bank lending would be more stable in the second half.

However, the nation's top policymakers have pledged to maintain stimulus spending and a "moderately loose" monetary policy as the economy is at a critical phase of recovery. With the effective help of the massive bank lending in the first half, the nation's economic growth has rebounded to 7.9 percent in the second quarter after dipping to 6.1 percent in the first three months of the year.