Strict curbs on banking risks
Source: Bloomberg News |
October 20, 2011, Thursday
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Print Edition
Print Edition
RISKS stemming from China's shadow banking system and private lending must be "strictly controlled" and such loans will be curbed, the head of the nation's banking regulator said.
Loans to local government financing vehicles and the real estate industry, which also pose dangers for the banking system, can be managed, Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a conference.
The government and regulators have already implemented "effective measures" that will ensure the overall risks are "controllable," Liu said, according to a transcript of his speech posted on the regulator's website yesterday.
Premier Wen Jiabao last week pledged to support smaller companies after media reports highlighted a credit squeeze that has driven many businesses to the so-called shadow banking system to obtain loans.
Lending in the informal banking system could be as high as 4 trillion yuan (US$627 billion), or 10 percent of gross domestic product, and interest rates range from about 20 percent to 40 percent, Wang Tao, a Hong Kong-based economist with UBS AG, estimated in an October 11 report. That compares with the key one-year lending rate of 6.56 percent.
State-run fund Central Huijin Investment Ltd said last week it would start increasing its holdings in the nation's four biggest state-owned commercial banks after their shares dropped on concerns that bad debts are increasing on loans to property developers and companies set up by local governments to build infrastructure.
"It's undeniable the lack of supervision and management of local government financing vehicles have created some hidden risks," Liu said.
Still, he said, ratings companies and investment analysts have underestimated the nation's determination and ability to carry out reforms and are "talking down" the nation's economy and banking industry.
Liu also said that banks' overall bad debt ratio on real-estate lending is under 2 percent and recent stress tests show that they can withstand a 40 percent decline in property prices. Property lending accounted for 19.8 percent of total outstanding loans at the end of August, he said.
Concerns are growing that the government's crackdown on the real estate industry will leave many companies unable to repay their loans.
Loans to local government financing vehicles and the real estate industry, which also pose dangers for the banking system, can be managed, Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a conference.
The government and regulators have already implemented "effective measures" that will ensure the overall risks are "controllable," Liu said, according to a transcript of his speech posted on the regulator's website yesterday.
Premier Wen Jiabao last week pledged to support smaller companies after media reports highlighted a credit squeeze that has driven many businesses to the so-called shadow banking system to obtain loans.
Lending in the informal banking system could be as high as 4 trillion yuan (US$627 billion), or 10 percent of gross domestic product, and interest rates range from about 20 percent to 40 percent, Wang Tao, a Hong Kong-based economist with UBS AG, estimated in an October 11 report. That compares with the key one-year lending rate of 6.56 percent.
State-run fund Central Huijin Investment Ltd said last week it would start increasing its holdings in the nation's four biggest state-owned commercial banks after their shares dropped on concerns that bad debts are increasing on loans to property developers and companies set up by local governments to build infrastructure.
"It's undeniable the lack of supervision and management of local government financing vehicles have created some hidden risks," Liu said.
Still, he said, ratings companies and investment analysts have underestimated the nation's determination and ability to carry out reforms and are "talking down" the nation's economy and banking industry.
Liu also said that banks' overall bad debt ratio on real-estate lending is under 2 percent and recent stress tests show that they can withstand a 40 percent decline in property prices. Property lending accounted for 19.8 percent of total outstanding loans at the end of August, he said.
Concerns are growing that the government's crackdown on the real estate industry will leave many companies unable to repay their loans.
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