Mainland bank regulator vows to tackle loan risks

Lenders must be prepared for rise in bad debts and find ways to dispose them, says Shang Fulin

PUBLISHED : Monday, 04 November, 2013, 3:50pm
UPDATED : Tuesday, 05 November, 2013, 2:45am

The mainland's banking regulator pledged to work harder to head off the risks of a possible rise in non-performing loans, in particular from industries plagued by overcapacity.

The comments from Shang Fulin, the head of the China Banking Regulatory Commission, are the latest official warning on financial risks as the government pushes ahead with structural reforms.

Shang said at a meeting with bank executives in Fujian province that banks must seek various channels to safely dispose of bad loans in industries facing acute overcapacity problems.

"We must make more efforts to prepare for a possible rise in non-performing assets and explore market-based options to pack and transfer bad loans," Shang said.

"Banks must also seek various channels to clean up bad loans by industries with overcapacity to prevent new risks from brewing."

To pursue a more sustainable growth model and eventually rebalance the economic structure, Beijing this year has intensified a campaign to reduce overcapacity pressure in several industries.

The China Banking Association said in a report that bad loans at mainland banks could rise by between 70 billion yuan (HK$88.9 billion) and 100 billion yuan this year partly because of delinquency risks from industries plagued by overcapacity.

The association singled out steel, photovoltaic and shipping sectors as being at the forefront of a potential new crop of bad loans.

Official data showed the mainland's non-performing loan ratio for commercial banks stayed at 0.96 per cent at the end of June, unchanged from the level at the end of March.

According to third-quarter reports, some commercial banks saw small increases in their ratio of non-performing loans.

Industrial and Commercial Bank of China said its ratio was 0.91 per cent at the end of September, compared with 0.87 per cent three months earlier.

The nation's fifth-biggest lender, Bank of Communications, reported a ratio of 1.01 per cent at the end of September, from 0.99 per cent in June.

At the Fujian meeting, Shang reiterated the policy of cutting new credit lines to projects in areas of severe overcapacity.

Mainland banks are banned from providing new credit to such projects through issuing wealth management products.

Shang also urged banks to take action as soon as possible to not lose the best opportunity to keep bad loan risks from rising.