Bank watchdog vows to control loan defaults

The mainland banking regulator will focus on controlling defaults in loans to local governments, the real estate sector and industries with redundant capacity this year, after bad loans grew for a fifth consecutive quarter.

Shang Fulin, the chairman of the China Banking Regulatory Commission, told an internal meeting recently that banks should continue to support economic development, while the regulator would "firmly hold the line" on preventing a breakout of financial risks this year, the regulator said yesterday.

Shang is expected to stay on as the regulatory chief after the National People's Congress, which is scheduled to end on March 17.

The asset quality of mainland banks has been deteriorating since the lending binge on the heels of the 2008-09 financial crisis. Loans overdue for at least three months rose 14.1 billion yuan (HK$17.6 billion) in the fourth quarter of last year, to 492.9 billion yuan, marking the longest successive quarterly declines since 2004.

Banks should also "contain risks from wealth management products … and prevent risk from shadow banking", Shang said.

The shadow banking system, including wealth management products and trust loans, has been booming. The proportion of bank loans in total social financing - a measure of all financing means - fell to 52 per cent last year from 91 per cent in 2002, underscoring their declining importance.