Banking regulator urges nation's lenders to effectively control risks

View of a stand of China Construction Bank at a financial expo in Beijing, Sep 8, 2016. [Photo/VCG]

China's banking regulator on Wednesday issued a notice vowing to address regulatory loopholes and urging the country's lenders to effectively control risks.

The move is the latest following a string of measures taken by the regulators to contain systemic risks and asset bubbles, an indication of tightening financial regulation in the country.

The China Banking Regulatory Commission said in the notice that it will strengthen supervision and address regulatory shortcomings to prevent practices that exploit regulatory loopholes.

The CBRC is also drafting rules to better regulate the financial institutions' shareholders, aiming to clarify the qualifications and quantity requirement and to improve transparency of shareholders' backgrounds and their capital sources.

The regulator ordered the banks to raise the standard and quality of the information disclosure on the financial products, while pledging tougher punishment for wrongdoings.

It also urged local bureaus of the CBRC to strengthen supervision through information technology as well as on-site inspection.

Chinese commercial banks are facing the twin pressures of declining profitability and rising funding costs, as the central authorities push for financial deleveraging to prevent risks that will weigh on their earning prospects, analysts said.

The CBRC on Monday issued guidelines that highlighted 10 major risks in areas including inter-bank lending, wealth management and investment business, property and online financing.

"The new guidelines will mean stricter regulation of the interbank business and banks' off-balance-sheet business," said Qu Jun, an analyst at GF Securities Co.

"Banks with a relatively weak capital position and high liabilities in the interbank business will see greater business constraints and increased pressure on profitability pressure in line with the process of tightened regulations and the acceleration of financial deleveraging," he said.

China has ramped up efforts to curb financial risks as worries have emerged about high corporate leverage, rising credit defaults by companies, as well as risks in the property market.