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Authorities warn banks on loans

CHINA'S banking authorities have warned banks against making risky loans in a credit boom.

The China Banking Regulatory Commission and the Ministry of Finance issued a joint statement late on Sunday, requiring banks to improve risk controls.

"Banks and financial institutions must further increase their support to the economy and strengthen risk management to boost a stable and relatively fast economy growth," the two authorities said.

The People's Bank of China has repeatedly pledged it will stick to its relatively easing monetary policy despite China's rising liquidity. Concerns are emerging about credit quality and the joint statement came as the latest reaction from the authorities to the issue.

Banks in China extended a record 5.17 trillion yuan (US$757.2 billion) of new yuan loans in the first four months, which surpassed the government's whole year new credit target of "at least 5 trillion yuan."

China's whole-year new credit loans are expected to top 8 trillion yuan with the sizzling growth recorded in the first four months.

The booming credit growth has triggered wide concerns of a possible surge of bad assets, which could be a big headache for banks in the future.

Banks should be highly attentive to their borrowers' financial strengths and their debts to avoid the concentration of credit risks, the statement said.

Banks should also be cautious in assessing risks when issuing loans for mergers and acquisitions to avoid losses caused by companies' blind expansions, the statement said.

The banking authorities in December gave the green light for qualified commercial banks to offer loans for M&A transactions, the first time such loans have been allowed in more than a decade.

Banks also have to be cautious against operational risks in their internal risk controls.


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