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October 24, 2009

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CBRC orders banks to do quarterly tests

CHINA'S commercial banks will have to conduct stress tests on a quarterly basis, instead of annually, from next year to improve their control on liquidity management.

The China Banking Regulatory Commission issued the order in a guideline sent to commercial banks that they should conduct the tests quarterly to analyze their solvency and risk control capability, the China Securities Journal said yesterday. The stress tests are done annually at present.

The CBRC also demanded that banks improve the stability of funding sources and reduce reliance on volatile liabilities. They are advised to cut borrowing and lending risks through diversification.

The requirement is among recent moves to tighten oversight of the country's commercial banks.

Liu Mingkang, chairman of the CBRC, said on Wednesday Chinese banks must be "reasonable" in their lending and wary of a rise in bad loans.

He ordered banks to quickly establish liquidity risk management systems and pay close attention to the possible impact on market liquidity by international capital flows, macro-economic trends and policy adjustment.

China has practised a relatively loose monetary policy since November to stimulate the economy. At the end of last month, M2, the broadest measure of money supply, rose 29.3 percent from a year ago to 58.5 trillion yuan (US$8.56 trillion). New yuan loans by Chinese banks surged to 8.67 trillion yuan in the first three quarters, 75 percent more than the amount last year.


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