Banks need stress tests, regulator says
By Louise Ho |
January 17, 2012, Tuesday
|
Print Edition
Print Edition
CHINESE banks must conduct regular stress tests and improve risk detection despite having improved ratios of bad loans and capital adequacy, Shang Fulin, chairman of the China Banking Regulatory Commission, wrote in an article published yesterday.
The risk-management ability of Chinese banks has been substantially improved in the past few years, Shang wrote in Caijing magazine.
"Chinese banks' capital adequacy ratio and provisions have increased significantly, and their non-performing loan ratio has fallen drastically," he said.
"But behind all these good figures there are still some hidden risks," warned Shang, who has headed the banking watchdog since November.
Banks must conduct stress tests regularly on credit risk, the top banking regulator said. They also must closely watch their loans' cash flow and re-evaluate their mortgages, he said.
Investors are worried about banks' bad loans, especially local government debts standing at 10.7 trillion yuan (US$1.7 trillion).
A research report by the Bank of Communications has warned banks may have higher balance of bad loans this year.
Shang also said banks must make capital management their priority.
"Obviously, such forced capital replenishment caused by asset expansion is not sustainable," he said, referring to the credit expansion in 2009 followed by fundraising from the stock and bond markets.
The more sustainable development for banks is to promote the real economy by lending to construction projects, small enterprises and the agricultural sector, he said.
The risk-management ability of Chinese banks has been substantially improved in the past few years, Shang wrote in Caijing magazine.
"Chinese banks' capital adequacy ratio and provisions have increased significantly, and their non-performing loan ratio has fallen drastically," he said.
"But behind all these good figures there are still some hidden risks," warned Shang, who has headed the banking watchdog since November.
Banks must conduct stress tests regularly on credit risk, the top banking regulator said. They also must closely watch their loans' cash flow and re-evaluate their mortgages, he said.
Investors are worried about banks' bad loans, especially local government debts standing at 10.7 trillion yuan (US$1.7 trillion).
A research report by the Bank of Communications has warned banks may have higher balance of bad loans this year.
Shang also said banks must make capital management their priority.
"Obviously, such forced capital replenishment caused by asset expansion is not sustainable," he said, referring to the credit expansion in 2009 followed by fundraising from the stock and bond markets.
The more sustainable development for banks is to promote the real economy by lending to construction projects, small enterprises and the agricultural sector, he said.
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