Sat, Apr 10, 2021 page10

• China extends campaign to control risk at banks

  • Bloomberg
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  The Chinese government on Thursday told smaller, local financial institutions to step up risk management and avoid “excessive” growth, stepping up a campaign to clamp down on a build-up in debt as the economy stabilizes.

  At a meeting of the Chinese Financial Stability and Development Committee, Chinese Vice Premier Liu He (劉鶴) called for “zero tolerance” on illicit activities, telling regulators to improve supervision of shareholders and owners of financial institutions, risk concentration, connected transactions and data authenticity, an official statement said.

  With the COVID-19 pandemic largely contained and the economy rebounding, policymakers are shifting their focus to deleveraging, a long-standing goal shelved during a trade dispute with the US and further delayed by the pandemic.

  

  Chinese Vice Premier Liu He, right, gestures as then-US Secretary of the Treasury Steven Mnuchin, center, and then-US trade representative Robert Lighthizer attend an event at the Diaoyutai State Guesthouse in Beijing on May 1, 2019.

  Photo: Reuters

  Last year’s stimulus pushed debt to almost 280 percent of annual economic output, with banks alone doling out a record 19.6 trillion yuan (US$3 trillion) in cheap credit.

  “The committee meeting signals that China will conduct a systematic review of local financial institutions, especially the ones related to local governments, to resolve risks,” said Cao Heping (曹和平), a professor of economics at Peking University.

  The People’s Bank of China has also told the nation’s major lenders to curtail loan growth for the rest of this year after a surge in the first two months stoked bubble risks, people familiar with the matter have said.

  

  A man walks past the headquarters of the People’s Bank of China in Beijing on Feb. 3 last year.

  Photo: Reuters

  At a meeting with the central bank on March 22, banks were told to keep new advances this year at roughly the same level as last year.

  Over the past three years, the banking regulator has zeroed in on the nation’s about 4,000 small city and rural banks, which are struggling with bad loans and poor corporate governance.

  These institutions have amassed one-quarter of total banking assets by the end of last year and their lending growth — fueled by interbank borrowing and shadow financing — has often outpaced bigger rivals.

  Confidence in smaller banks was jolted in the middle of 2019, when regulators seized control of a lender in Inner Mongolia — the first such move in two decades — and imposed losses on some creditors.

  Authorities have since orchestrated bailouts of two other banks and intervened to quell at least two bank runs by jittery depositors.
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