Monday, January 12, 2009

China Urges Banks to Strictly Control Bad Loan Ratios

Jan. 13 (Bloomberg) -- China urged financial institutions to “strictly control” the balances and ratios of their non- performing loans, the banking regulator said in a statement on its Web site late yesterday. Banks should “maintain correct categorization, ample reserves, sufficient capital and stick to risk control,” the China Banking Regulatory Commission said. The statement followed a speech by Chairman Liu Mingkang to officials in Beijing yesterday in which he said China aimed to prevent a “massive and rapid rebound” in bad loans. China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, as the global financial crisis worsens, the World Bank predicts. “The downside risk to the Chinese economy is even worse than anticipated,” Liu, 62, said in the speech. He last month said expansion of 7 percent or less could trigger social instability. Industrial & Commercial Bank of China, the world’s largest bank by market value, and competitors have said they’ll increase lending as part of the government’s $590 billion stimulus package, announced in November. China’s biggest banks are all state controlled. Bank of Communications Ltd., the nation’s fourth-largest lender by market value, will follow a principle that “safeguarding economic growth is safeguarding banks” themselves, Chairman Hu Huaibang wrote in the central bank- affiliated China Finance magazine Dec. 16. Banks cut their average bad-loan ratio to 5.49 percent at the end of September, from 6.3 percent six months earlier. The CBRC encourages lending to fund small and medium-sized businesses, mergers and acquisitions among large companies, as well as credit for automobile and home appliance purchases, according to a transcript of Liu’s speech. To contact the reporter for this story: Philip Lagerkranser in Hong Kong at at

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