CBRC to try to rein in risk

BEIJING, April 13 -- China's banking regulator said
it will step up efforts to control risk management in Chinese banks as domestic
lending continued to grow in March.

Chinese banks reportedly extended a whopping 1.87
trillion yuan worth of new loans in March, following record-setting lending
growth in the first two month of this year.

The China Banking Regulatory Commission (CBRC) lifted
annual lending quotas on domestic banks last November to boost economic growth
amid the global financial crisis. Lending in Chinese banks has skyrocketed ever
since.

The rise in March would bring the first-quarter
figure for new loans to about 4 trillion yuan, close to the 5 trillion yuan
lending target Premier Wen Jiabao announced at the National People's Congress.

World leaders vowed at the London G-20 Summit to
regulate financial firms more strictly in the wake of the global financial
crisis. Although Chinese banks have largely been left untouched compared to
their western peers, it doesn't mean they're in a risk-free haven, analysts
said.

This year's lending by Chinese banks has included a
high proportion of discounted bill financing, generally used to meet companies'
short-term cash needs, fuelling speculations that much of the surge in loans may
be funding stock market speculation rather than business operations or
investment.

Chinese media reported earlier that the CBRC had
begun auditing lending growth in Chinese banks to learn where the new loans
actually ended up.

Authorities have forbidden commercial banks from
transferring funds raised from discounted bills into deposit accounts, China
Securities Journal reported. The *** also quoted a regulatory official as
saying that the current increase in credit basically reflected the demands of
the real economy.

Liu Mingkang, chairman of the CBRC, said that capital
adequacy ratio and provision coverage ratio in Chinese banks has to meet the
latest regulatory requirement, when speaking at a meeting held at the Chinese
Academy of Social Sciences.

According to latest regulations from the CBRC,
capital adequacy ratio in major domestic banks has to be higher than 12 percent
while provision coverage ratio in those banks need to be improved to 150 percent
by the end of 2009.

As at the end of 2008, capital adequacy ratio in the
country's top three State-controlled banks, Industrial and Commercial Bank of
China (ICBC), China Construction Bank (CCB) and Bank of China (BOC), met the
CBRC's 12 percent requirement. But both ICBC and CCB have to raise their
provision coverage ratio by about 20 percentage points to keep in line with the
CBRC's new regulation, while BOC's provision coverage ratio has to be boosted by
about 30 percentage points.

In addition, China will ask foreign investors to
commit to a lockup period of five years or more when they acquire stakes in
Chinese banks, as an effort to shield domestic banks from the impact of stake
sales by overseas investors.

CBRC chairman Liu mentioned the new policy for the
first time last week without giving details on when it would be implemented. In
recent months, several foreign banks have sold stakes in Chinese banks to raise
cash amid the global financial crisis, causing share prices of Chinese banks to
fluctuate.

(Source: China Daily)