Regulators tighten bank risk management as more loans go sour

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. [Photo/Agencies]

China is further tightening risk management regulations on the banking industry and stepping up efforts to build and improve a comprehensive risk management system.

Regulators emphasized on Thursday the importance of comprehensive risk management and reminded banks to be on guard against potential risks that may be triggered by the bursting asset bubbles.

"Our banking industry is facing the most severe operating pressure since the reform and listing of State-owned banks in 2004. As the situation will not improve in a short time, banks should be prepared for a tough, long-term battle," said Yu Xuejun, chairman of the supervisory board for key State-owned financial institutions of the China Banking Regulatory Commission.

As of the end of May, the balance of nonperforming loans of China's banking institutions exceeded 2 trillion yuan ($299 billion), increasing by more than 280 billion yuan from the beginning of this year. During the same period, the NPL ratio went up 16 basis points to 2.15 percent.

"Challenges continue to arise in the export-oriented economic model, whereas a new growth model has not been established yet. So a rebound in nonperforming loans will take long. To go through hard times, the banking sector must take a long-term view," said Yu at the China Banking Development Forum held by the financial news portal of Sina.com, a Chinese online media company.

He advised banks to keep their technology development and comprehensive risk management up to date in order to deal with an increasingly complicated economic environment.

Several bankers expressed similar views on risk management at the forum. Niu Ximing, chairman of the Bank of Communications Co Ltd, said: "Banks should be particularly careful with the time lag between current profits and the risks that may not cause actual losses until seven years later. At present, nonperforming loans have not yet reached their peak, and banks should hold onto the principle of prudent operation."

Shao Ping, president of Ping An Bank Co Ltd, also said banks must abandon aggressive actions for short-term profits and return to a rational development plan in the long run.

The China Banking Regulatory Commission posted a draft of guidelines for comprehensive risk management in banking institutions on its website on Wednesday to solicit public opinions.