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Warning: China'S Banking Industry Is Accumulating Serious Risks.

2010/9/9 18:44:00 57

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The highest banking sector in China

Regulatory body

Warns that China's banking industry is accumulating serious risks and will link up the financial control of institutions and the important tasks of maintaining social stability.

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Chairman of the China Banking Regulatory Commission (ChinaBankingRegulatoryCommission)

Ming Kang Liu

The speech contrasted with the optimistic outlook of most state banks in the mid-term report in recent weeks.

After unprecedented credit boom in the past two years, most banks are not concerned about the risks accumulated in the balance sheet.

Liu Mingkang said that financial institutions need to improve the design, implementation and application of "stress testing".

The stress test is designed to assess the vulnerability of banks in the economic downturn or the collapse of the real estate market.

"There are still many weak links in China's banking financial institutions in the construction of risk management system."

Ming Kang Liu

In a speech released on Wednesday, he said.

"Systemic risk exposure of banks should not be overlooked."

He said that in order to achieve the "dual goal" of promoting economic development and maintaining social stability, China's banking industry must establish a long-term mechanism with capital and risk management as its core.

Since last year, the CBRC has ordered banks to conduct regular stress tests on a series of businesses, and even asked them to predict the impact of a 60% drop in house prices in major cities.

Banks are very relaxed about the test results.

BankofCommunications, the fifth largest in assets, said that real estate prices in major cities fell by 50%, which would only increase its non-performing loan ratio by 1.2 percentage points.

Many analysts are skeptical of the above news.

Chinese bankers told the financial times that since then, the CBRC has asked them not to disclose the specific results of the test.

Liu Mingkang said that banks in China urgently need to shift their focus from the number of loans to the quality of loans, echoing a comment by BankofChina, chairman of the board of directors of Xiao Gang, about the "irrational expansion" of banks.

"In the current financial environment, expanding the scale is the best way for Chinese banks to earn more profits," Xiao Gang wrote.

"However, this growth mode can neither guarantee the long-term stable development of the banking industry nor meet the needs of a balanced economic and social structure."