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China's banks told to make more provision for bad loans

CHINA'S banking regulator has asked the country's big five state-owned banks to make more provision for bad loans and has urged caution over overseas merger and acquisitions and the possible exit of overseas investors.

The China Banking Regulatory Commission has advised banks to balance the adequacy of capital and business development, expand channels for them to add capital and further increase provisions against bad loans, in a 12-page document obtained by Shanghai Daily yesterday.

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

"Credit is made 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 the middle of this month.

The regulator also told the banks to strengthen risk control on overseas business and possible overseas mergers and acquisitions.

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

The big banks are also told to be wary of the cooperation with their strategic overseas partners as the three-year lock-up period expired, indicating concern over the departure of overseas players.

The major banks are told to keep a close eye on the business of strategic investors, seriously study future arrangements with them and be prepared to take action to solve problems and retain the benefits of cooperation.

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

A large number of overseas banks' three-year lock-up periods have expired since the end of last year, and they cut holdings in the Chinese banks to cash in profits and ride out of the mire in their home market as the subprime mortgage crisis in the United States spread globally.

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

Liu Mingkang, chairman of the banking regulator, on Thursday said China's banking industry was stable and sound against a global financial fallout.

Liu said the regulators would prevent swinging back to a state where its banks hold large amounts of bad debt on their books.


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