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January 23, 2010

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Regulator rules on risky loans

THE Shanghai banking regulator has put improving loan structure and curbing risk as the top of its agenda this year.

Banks should pace credit reasonably, or avoid a surge of credit, and stop credit to overcapacity industries as the banking industry is guided to support the real economy by channeling capital to strategic industries and low carbon sectors, the Shanghai bureau of the China Banking Regulatory Commission said yesterday.

Smaller banks, including city-level commercial banks and rural commercial banks, are banned from picking up loans dropped by bigger banks to overcapacity industries or environmentally unfriendly projects, Yan Qingmin, head of the Shanghai banking regulator said at the bureau's 2010 work meeting.

A close eye should also be kept on credit risks, especially real estate credit, the regulator said.

China's top banking regulator asked big banks to make a provision of more than 150 percent against bad loans to put a lid on sour loans. The average provision at commercial banks Shanghai rose to 151.44 percent at the end of 2009, up 26.29 percentage points from the year before.

While closely monitoring risks on credit growth, the local banking regulator encourages financial innovation, it said.

The regulator encourages Taiwan banks to set up a foothold in Shanghai and encourages overseas banks to expand in developing areas.

In 2009, 18 banking institutions opened networks in Shanghai.

Qualified financial leasing companies and auto loan companies are also encouraged to issue bonds in the inter-bank market.

Bad loans at banks in Shanghai dropped 907 million yuan (US$132.8 million) to 34.66 billion yuan at the end of 2009. The non-performing loan ratio also decreased 0.29 percentage point to 1.18 percent.

Profits in the industry were being clawed back quarter by quarter in 2009. Banking profits in Shanghai totaled 59.88 billion yuan last year.

This was down 15.5 percent year on year, compared with 2008's record profits of 70.86 billion yuan.

Total banking assets in Shanghai rose 19.75 percent to 6.26 trillion yuan as of the end of last year.


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