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Steps to revive economy may see bad debt up
By Philip Lagerkranser |
January 13, 2009, Tuesday
|
Print Edition
Print Edition
CHINA will tolerate an increase in bad debt this year as it eases rules governing bank lending to revive the slowing economy, the nation's banking regulator said.
The China Banking Regulatory Commission will drop its target of reducing the ratio of bad loans after five years of declines, and instead aim to prevent a "massive and rapid rebound" in soured debts, Chairman Liu Mingkang said in Beijing yesterday. A transcript of his speech was obtained by Bloomberg News. The watchdog is planning to release a statement on the remarks.
The regulator will have a "reasonable tolerance" for rising bad loans, Liu said. Shrinking corporate profits and interference by local governments have "seriously" reduced borrowers' willingness to repay debts, he added. Banks cut their average bad-loan ratio to 5.49 percent at the end of September, from 6.3 percent six months earlier.
Still, the CBRC will ban companies from taking up new project loans to repay existing ones, and prohibit bundling of non-performing assets into securities, according to the transcript. Banks will not be allowed to lend to production projects before investors get relevant approval, Liu said.
The regulator will also broaden the channels for banks to boost capital and urge them to increase provisions, Liu said without being more specific.
Looser requirements may fuel concerns about a surge in bad loans, four years after China finished a cleanup of its banking system that cost more than US$500 billion.
"What we're concerned about is whether banks will, after government interference, boost lending without properly recognizing the risks," said Liao Qiang, a Standard & Poor's analyst based in Beijing, in an interview. "Governments tend to relax prudential regulatory requirements in difficult times. The key is how banks react."
Steps to boost credit include allowing banks to lend to firms afflicted by temporary financial woes because of the global recession but with sound fundamentals, Liu said. Banks can also restructure loans and "scientifically" adjust the types and maturities of debt, and the regulator will support the sale and securitization of loans, he said.
The China Banking Regulatory Commission will drop its target of reducing the ratio of bad loans after five years of declines, and instead aim to prevent a "massive and rapid rebound" in soured debts, Chairman Liu Mingkang said in Beijing yesterday. A transcript of his speech was obtained by Bloomberg News. The watchdog is planning to release a statement on the remarks.
The regulator will have a "reasonable tolerance" for rising bad loans, Liu said. Shrinking corporate profits and interference by local governments have "seriously" reduced borrowers' willingness to repay debts, he added. Banks cut their average bad-loan ratio to 5.49 percent at the end of September, from 6.3 percent six months earlier.
Still, the CBRC will ban companies from taking up new project loans to repay existing ones, and prohibit bundling of non-performing assets into securities, according to the transcript. Banks will not be allowed to lend to production projects before investors get relevant approval, Liu said.
The regulator will also broaden the channels for banks to boost capital and urge them to increase provisions, Liu said without being more specific.
Looser requirements may fuel concerns about a surge in bad loans, four years after China finished a cleanup of its banking system that cost more than US$500 billion.
"What we're concerned about is whether banks will, after government interference, boost lending without properly recognizing the risks," said Liao Qiang, a Standard & Poor's analyst based in Beijing, in an interview. "Governments tend to relax prudential regulatory requirements in difficult times. The key is how banks react."
Steps to boost credit include allowing banks to lend to firms afflicted by temporary financial woes because of the global recession but with sound fundamentals, Liu said. Banks can also restructure loans and "scientifically" adjust the types and maturities of debt, and the regulator will support the sale and securitization of loans, he said.
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