China's regulator warns on loan spree

[FT_news]

The statement from the chairman of the China Banking Regulatory Commission may signal a more assertive stance as the country sets out its economic agenda for the coming year

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[forum_admin]

China’s top banking regulator on Friday warned of growing risks to the country’s financial system as a result of an unprecedented expansion in new loans and urged the country’s lenders to improve their internal management.

The statement by Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), may signal a more assertive stance from the body in the build-up to a top-level Communist party meeting scheduled for November that will set the country’s economic agenda for the coming year.

Chinese financial institutions extended Rmb8,185bn ($1,199bn) in local currency loans in the first eight months of this year, an increase of 164 per cent from the same period in 2008, a credit binge analysts say has been facilitated by a serious relaxation in lending standards.

The CBRC has introduced tightening measures in recent months, demanding that banks increase the money they hold in reserve to cover bad loans and monitor whether their loans are being diverted into speculative investments in stocks and property.

Chinese banks are required to maintain a minimum capital adequacy ratio of 8 per cent, but the CBRC has ordered most banks to raise their reserve funds to 10 per cent.

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China’s regulator warns on loan spree