Mainland banks face mounting loan dangers
Regulator orders tighter control of wealth management products and seeks to stop contagion from underground financing
The mainland banking sector is said to be facing increasing risks from problematic loans and off-balance-sheet businesses, leaving regulators a daunting task in the future.
The top priority of the China Banking Regulatory Commission (CBRC) this year is to prevent "systematic risk" and "regional risk", the regulator said at its annual work meeting on Monday.
The CBRC will "strictly control" risks related to off-balance-sheet businesses, including wealth management products sold by banks, and prevent risk spreading from the underground financing market to the banking system, the regulator said on its website yesterday.
Banks should also improve the management of default risks in loans to local government financing vehicles, property developers and industries with overcapacity problems, a legacy of the lending spree in 2009 that helped fund the nation's 4-trillion-yuan (HK$4.94 trillion) stimulus package.
The call for better management comes as the "external impact" from shadow banking and "internal pressure" to raise competitiveness force lenders to take risks, according to the regulator.
Zhang Zhiwei, chief China economist at Nomura Securities, said the CBRC's top policy objective of "controlling risks" suggested credit growth, as measured by total social financing, likely peaked in the second half of 2012 and would decline this year. There are fears that shadow banking credit could implode and affect the traditional banking system.