MNI: China Banking Watchdog Warns Over Credit Risks

     BEIJING (MNI) - China's financial system still suffers from risks that

could occur frequently, including the possible return of non-performing loans

and a large shadow banking stock, so risk prevention remains the top priority in

2018 for the authorities, the China Banking Regulatory Commission, the regulator

of the banking sector said Friday in a briefing.

     "The CBRC will focus on lowering corporate debt ratios, curbing household

leverage, squeezing interbank transaction, controlling property bubbles and

regulating illegal debt of local governments in a bid to resolve risks while

maintain the economic stability," Xiao Yuanqi, chief of the Prudential

Regulation Bureau of the China Banking Regulatory Commission, told reporters.

     There is a long way to go for China to further optimize its credit

structure, particularly as credit demand continues to rise. According to the

CBRC, new banking loans totalled CNY2.6 trillion in January, increasing CNY325.5

billion from the same period last year.

     "A large amount of credit resources are still stuck in sectors with over

capacities and some excessively concentrated in big and medium-sized companies,

which have dragged down the quality of credit assets," Xiao warned, "The

unperfected credit law system and local protectionism in some regions have

jeopardized the risk control campaign."

     The CBRC has stepped up risk prevention since last year through enhanced

inspection, targeting interbank transactions, wealth management products and

off-balance-sheet businesses. According to the CBRC, special purpose vehicle

investments saw the first reduction in January, falling 39.2 percentage points

from last January. Outstanding WMP totalled CNY30.6 trillion in January,

dropping 26.6 percentage points from last January. The outstanding trust loans

reduced CNY40.8 billion as of the end of 2017, the first monthly fall since

August 2016.

     "The 180% provision coverage ratio and 13.65% capital adequacy ratio, which

total about CNY21 trillion, will provide ammunition of Chinese banking sector to

resist risk, " Xiao stressed.

     The CBRC will continue to push forward debt-to-equity swaps in order to

deal with NPLs, the regulator noted, adding the five big state-own banks -- Bank

of China, Industrial and Commercial Bank of China, Agricultural Bank of China,

China Construction Bank and Bank of Communications -- have all set up their

affiliate debt-to-equity swap companies by the end of 2017.

     "The regulator will insist in four 'W' in the process of risk prevention --

which are risks, where are risks, why risks happen and what are the policies and

measures," Xiao concluded.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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