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New broom for state finance arms
By Zhang Fengming |
July 26, 2010, Monday
|
Online Edition
Online Edition
CHINA'S regulators are reportedly considering rules to further clean up irregularities in the financing arms of local governments.
The Ministry of Finance, the National Development and Reform Commission, China Banking Regulatory Commission, and the People's Bank of China are planning to jointly issue an operational rule, following State Council's notice to clear up the sector, the Shanghai Securities News reported today, without citing its sources.
Local governments are required to clean up their investment or financing arms by the end of this year. Financing arms are banned from holding public assets such as schools, hospitals and parks.
The State Council, or China's cabinet, fears rising bad assets could be a headache for banks and the country's stable economic growth.
The top banking regulator has already asked banks to inspect the risks on loans issued to such financing arms, whose investment projects can be redundant or wasteful.
Moody's Investors Services said earlier that Chinese banks' bad loans are set to rise, with real estate and local government financial vehicles as sources of worsening assets.
The financing arms of local governments are deemed as one risk area partly due to opaque government financial positions.
Non-performing loans in the segment are set to rise, but loss mitigation has had an early start, Moody's said.
About half of all loans to such investment arms need to be serviced by secondary sources including guarantors because the ventures can't generate sufficient revenue, Bloomberg reported, citing a source who declined to be named.
Banks in China issued a record 9.6 trillion yuan (US$1.4 trillion) of new yuan loans in 2009. The pace slowed down this year as banks extended 4.63 trillion yuan new loans in the first half of this year.
The Ministry of Finance, the National Development and Reform Commission, China Banking Regulatory Commission, and the People's Bank of China are planning to jointly issue an operational rule, following State Council's notice to clear up the sector, the Shanghai Securities News reported today, without citing its sources.
Local governments are required to clean up their investment or financing arms by the end of this year. Financing arms are banned from holding public assets such as schools, hospitals and parks.
The State Council, or China's cabinet, fears rising bad assets could be a headache for banks and the country's stable economic growth.
The top banking regulator has already asked banks to inspect the risks on loans issued to such financing arms, whose investment projects can be redundant or wasteful.
Moody's Investors Services said earlier that Chinese banks' bad loans are set to rise, with real estate and local government financial vehicles as sources of worsening assets.
The financing arms of local governments are deemed as one risk area partly due to opaque government financial positions.
Non-performing loans in the segment are set to rise, but loss mitigation has had an early start, Moody's said.
About half of all loans to such investment arms need to be serviced by secondary sources including guarantors because the ventures can't generate sufficient revenue, Bloomberg reported, citing a source who declined to be named.
Banks in China issued a record 9.6 trillion yuan (US$1.4 trillion) of new yuan loans in 2009. The pace slowed down this year as banks extended 4.63 trillion yuan new loans in the first half of this year.
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