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Banks told to put aside more bad loan provisions

CHINA'S banking regulator has asked the country's big five state-owned banks to put aside more provisions against bad loans, show caution with overseas mergers and acquisitions and be aware of the possibility that overseas investors may want to exit.

The China Banking Regulatory Commission is urging banks to balance the adequacy of capital and business development. It is pushing to expand channels for them to add capital and further increase the provisions against bad loans, the top banking regulator said in a 12-page document obtained by Shanghai Daily today.

The regulator also set out a whole-year schedule on risks for the five banks -- Industrial & Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China and Bank of Communications -- to guide them to move in line with the central government's economic stimulus package but also to becareful about the loose issuing of credit.

"Credit is offered to save those in urgent need, to save the poor but not to save those who abuse credit," the regulator said in the document dated from the middle of this month.
The top regulator also told the banks to strengthen risk controls for their overseas business and possible overseas mergers and acquisitions.

Guo Shuqing, chairman of the China Construction Bank, said earlier this month that the country's second biggest bank has no plans for overseas mergers and acquisitions because of the uncertainty of the market.

The big banks have also told to be wary of cooperation with strategic overseas partners as the three-year lock-up period has expired, giving concerns about the possible departures of overseas players.

The major banks are told to closely watch strategic investors, seriously study future arrangements with them and be prepared to take action to solve problems and retain the benefits of cooperation.

The big Chinese banks sold shares to overseas players to gain capital, technology and expertise before they went public around 2005.

Many of the three-year lock-up periods for overseas banks expired at the end of 2008 and they cut holdings in the Chinese banks to cash in their profits and ride out the mire in their home markets as the subprime mortgage bubble burst in the United States and spread into the global financial crisis.

In January, the Bank of America cut its holding in Construction Bank by 2.4 percent to 16.6 percent to cash in US$3 billion. Royal Bank of Scotland sold off its 4.26 percent stake in Bank of China in January.

Liu Mingkang, chairman of the top banking regulator, said yesterday that China's banking industry is stable and sound against the global financial fallout.

Liu said the regulator would prevent a return to the situation where its banks were holding large amounts of bad debt on their books, without elaborating how.


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