Banks warned on risk control
By Zhang Fengming |
August 12, 2010, Thursday
|
Print Edition
Print Edition
CHINA'S banking regulator has ordered lenders to move their off-balance sheet loans onto their books to beef up risk control and plug a loophole that banks have used to sidestep liquidity curbs.
Assets related to wealth management products managed by trust companies must be transferred onto bank's balance sheets by the end of 2011, said a statement from the China Banking Regulatory Commission.
Financing trust products can now only account for at most 30 percent of trust products.
Previously, financing trust products could work as "invisible credit" as they were not included in banks' books, allowing the lenders to issue loans via the channel by circumventing regulator's control on lending.
The new statement put a brake on the practice and may squeeze out the credit quota in the remaining year, analysts said.
Banks must allocate provisions equal to 150 percent of potential losses on such products.
Larger banks will be required to meet the minimum capital adequacy ratio of 11.5 percent after exposing the loans onto their books. While smaller banks must comply with at least 10 percent requirement on capital.
Chinese regulators are showing a tougher hand on risk control at banks, concerned over rising bad assets amid a fast credit growth.
Banks in China have extended 5.1 trillion yuan (US$753 billion) of new yuan credit in the first seven months of this year, closing in on the full-year target of 7.5 trillion yuan.
This year's credit has accumulated on record loans of 9.6 trillion yuan in 2009.
Rating firm Moody's warned that Chinese banks' bad loans are set to rise with real estate and local government financial vehicles as the main source of toxic assets.
Standard & Poor's said earlier this month that banks will need to raise more funds to cope with tighter capital requirements and loan growth.
Another rating firm Fitch said that de facto first-half Chinese lending was higher than official data suggests as more loans were repackaged into investment products.
China's five largest banks are raising more than a combined US$60 billion to replenish capital, which would bolster their ability to absorb bad loans after great credit growth.
Assets related to wealth management products managed by trust companies must be transferred onto bank's balance sheets by the end of 2011, said a statement from the China Banking Regulatory Commission.
Financing trust products can now only account for at most 30 percent of trust products.
Previously, financing trust products could work as "invisible credit" as they were not included in banks' books, allowing the lenders to issue loans via the channel by circumventing regulator's control on lending.
The new statement put a brake on the practice and may squeeze out the credit quota in the remaining year, analysts said.
Banks must allocate provisions equal to 150 percent of potential losses on such products.
Larger banks will be required to meet the minimum capital adequacy ratio of 11.5 percent after exposing the loans onto their books. While smaller banks must comply with at least 10 percent requirement on capital.
Chinese regulators are showing a tougher hand on risk control at banks, concerned over rising bad assets amid a fast credit growth.
Banks in China have extended 5.1 trillion yuan (US$753 billion) of new yuan credit in the first seven months of this year, closing in on the full-year target of 7.5 trillion yuan.
This year's credit has accumulated on record loans of 9.6 trillion yuan in 2009.
Rating firm Moody's warned that Chinese banks' bad loans are set to rise with real estate and local government financial vehicles as the main source of toxic assets.
Standard & Poor's said earlier this month that banks will need to raise more funds to cope with tighter capital requirements and loan growth.
Another rating firm Fitch said that de facto first-half Chinese lending was higher than official data suggests as more loans were repackaged into investment products.
China's five largest banks are raising more than a combined US$60 billion to replenish capital, which would bolster their ability to absorb bad loans after great credit growth.
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