Top Banking Regulator of China Warns of Credit Risk

Published By : 25 May 2015 | Published By : QYRESEARCH

The Chief banking regulator of China has warned of the increasing credit risk from the Chinese real estate market, the local government debt, and the modern forms of finance, emphasizing on the struggles of Beijing to avoid risky debt from overcoming a stuttering economy.

According to a speech by Mr. Shang Fulin, the chairman of the China Banking Regulatory Commission (CBRC), the amount of non-performing loans in the quarter-1 has already reached 56% of the total amount the previous year. The modern forms of credit that generally refers to instruments such as the letters of credit and the entrusted loans were also rising, he stated.

As the economic development of China has slowed down, Beijing is struggling to balance 2 policy goals. It tries to support finances at local governments and many of which got a lot into debt utilizing dense financing vehicles through a debt swap managed by the center.

Apart from this, Beijing is also keen on commercial banking in order to lend more to the actual economy, meaning loans to enterprises investing in development and not to those who speculate on the asset markets, or to simply assist companies stay afloat. However, the fear is that those banks will be unwilling to lend somewhere else if they have to deflect too much capital to the local governments.

Shang said credit risk had risen among commercial banks in China in the first quarter, with the total number of bad loans at 982.5 billion Yuan (US$158.44 billion), up 139.9 billion Yuan from the same period last year, bringing the bad loan ratio to 1.39%.
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