Financial regulators to minimise systemic risks

BEIJING - China's major financial regulators highlighted the necessity to curb systemic risks and maintain financial stability by all means in 2012 on Sunday, one day after the National Financial Work Conference concluded.

"We will strengthen the monitor over financial institutions while tracking domestic and international economic situation, to effectively counter economic and financial risks," said People's Bank of China (PBC), the central bank, in a statement after its annual work meeting ended.

It said it would research specific measures to reduce systemic risks among financial institutions and gear up to set up a deposit insurance system to serve the purpose.

"We must firmly hold on to the bottom line of no systemic and regional risks," said Shang Fulin, head of China Banking Regulatory Commission on Sunday in a statement.

He said banking environment will become more complicated and increasingly competitive in 2012, along with stricter requirements of banking services from society. "The regulatory task will be more difficult."

The government will focus on potential credit and liquidity risks this year, and prevent the off-balance sheet risk from spreading, said Shang.

In November 2011, the International Monetary Fund warned that China faces near-term domestic risks to the financial system, including the impact of the recent sharp credit expansion on banks' asset quality, the rise of off-balance-sheet exposures and lending outside of the formal banking sector.

It said the financial system could be severely impacted if credit, property, currency and yield curve shocks occurred together.

Premier Wen Jiabao called for the banking institutions to set up a more complete and prudent risk-monitoring regime on Saturday to prevent systemic risk.

Although the local government debts made via financing vehicles are "generally safe and controllable", the revenues and spendings through the vehicles should be included in the government's budget management, and a mechanism will be established to control the gross local government debts, he said at the end of the two-day National Financial Work Conference in Beijing.

Prior to the conference, analysts expected a new financial State-owned assets regulator to be set up soon for better control on risks, as the European sovereign debt crisis worsens and the global economy faces rising uncertainty.

"Although such an institution hasn't come into being as the market predicted, the government will probably establish a financial systemic risk regulatory commission directly led by a vice premier," said Lu Zhengwei, chief economist at the Industrial Bank Co Ltd.

Li Yang, deputy head of the Chinese Academy of Social Sciences, a major government think tank, said earlier that systemic risks could be well curbed as long as the country maintains comparatively high economic growth.

China could probably achieve an economic growth rate of 8.8 percent in 2012, as macroeconomic adjustments start to show effects since the second quarter, said Cao Yuanzheng, chief economist at the Bank of China Ltd.

The country will continue to implement prudent monetary policy this year to promote stable and relatively fast economic development, and will enhance monitoring and fend off risk of cross-border capital flows, said PBC.

After the central bank cut reserve requirement for lenders for the first time since 2008 at the beginning of December, new yuan loans in December registered a higher-than-expected 640.5 billion yuan ($101 billion), and M2, a broad measure of money supply, rose by 13.6 percent, according to data released by PBC on Sunday.

In 2011, the new yuan lending totaled 7.47 trillion yuan. Cao expected the figure for 2012 to stand at about 8 trillion yuan.