China banking regulator warns of rising risks

[HenryTo]

The attempt at the curbing of credit in China's biggest sectors continues.
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China banking regulator warns of rising risks

BEIJING, July 14 (Reuters) - China's top banking regulator warned the country's lenders on Friday to keep credit growth in check and to guard against risks from lending to sectors that face overcapacity or are undergoing consolidation.

Liu Mingkang, head of the China Banking Regulatory Commission, said banks needed to improve internal controls given increasing market risks.

"Banks especially need to pay attention to new changes and problems in the power, coal, oil, steel, property, automobile and transport industries, and take forward-looking and targeted measures to address them," Liu said in a statement published on the agency's Web site (www.cbrc.gov.cn).

Credit risks in highly polluting and energy-intensive industries were increasing dramatically and were far greater than the profit levels in those industries would suggest, he said.

Liu urged banks to follow policy makers' guidance on checking credit growth, but called on them to continue to make loans available to sectors of the economy that needed it.

Many policy makers in recent months have urged banks to increase lending to small and medium-sized enterprises, to which banks have traditionally been reluctant to extend credit.

Liu said that banks had to be on the alert against loan fraud, especially for property-related credit.

The country's banks have been hit by a series of scandals in the past few months.

A real estate executive and three former employees of the Bank of China <3988.HK> <601988.SS> went on trial this month for allegedly defrauding the bank of 750 million yuan ($94 million), according to domestic media.

Liu added that banks should pay close attention to loans for local projects, many of which are guaranteed by local governments.

Liu also said banks needed to adapt to a financial market that was becoming ever more sophisticated.

"Expectations for further yuan appreciation, fluctuations in the foreign exchange rate, the liberalisation of interest rates and changes in bond prices create even bigger challenges for commercial banks' risk pricing and management abilities," Liu said in the statement.

The central bank said on Friday that yuan-denominated lending rose to 21.5 trillion yuan by the end of June, an increase of 15.2 percent from a year earlier.

That was slower than May's 16 percent pace. But banks still extended 2.18 trillion yuan in new loans in the first six months of the year, 87.2 percent of the central bank's full-year target of 2.5 trillion yuan. ($1=7.9968 yuan)

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[quote="HenryTo"]