China’s banking regulator, in his first public comments since the country’s worst cash crunch in at least a decade, said the operations of its lenders would not be disrupted because they have built up sufficient cash reserves.
Banks had about 1.5 trillion yuan (US$244.4 billion) of cash reserves as of Friday that could be used for payment and settlement needs, more than double what is usually required, China Banking Regulatory Commission (CBRC) chairman Shang Fulin (尚福林) said in a speech in Shanghai yesterday.
“The tight liquidity condition on the interbank market has been easing in the last few days,” Shang said at the annual Lujiazui financial conference. “This type of situation won’t affect the banking sector’s smooth operations.”
Chinese bank stocks jumped on Friday after People’s Bank of China Governor Zhou Xiaochuan (周小川) pledged to maintain market stability following a cash squeeze that sent money-market rates to a record. Among buyers of the shares was Temasek Holdings Pte, Singapore’s state-owned investment company, which said on Friday it raised its stake in Hong Kong shares of Industrial and Commercial Bank of China Ltd (ICBC, 中國工商銀行) to 8.07 percent from 7.92 percent.
Shares of ICBC, China’s largest lender by market value, gained 2.7 percent in Hong Kong on Friday. The stock jumped 5.5 percent in Shanghai, the most since November 2010.
The cash crunch on the interbank market exposes “deficiencies” in commercial banks’ liquidity management and their business structures, Shang said.
The next phase of reform in the banking sector will focus on supporting the real economy and risk prevention, he said.
The one-day repurchase rate touched a record 13.91 percent on June 20, before tumbling on signs targeted injections of funds were being used to ease the cash crunch.
The slowing pace of economic growth in China remains within a “reasonable” range and the economy is stable, Zhou told the same forum on Friday in his first comments since the cash crunch. Zhou also sought to soothe concerns of a further deceleration of growth, saying he is fully confident in China’s economic prospects and financial system.
China’s banks have been stable and healthy this year, Shang said. They had set aside 2.8 yuan for every one yuan of soured assets at the end of last month as the industry’s non-performing loan ratio rose to 1.03 percent, he said.
The nation’s economy is in a transitional phase and risks associated with slowing economic growth, loans to local governments as well as the property sector are “controllable,” Shang said.
The nation’s banks had 9.59 trillion yuan of outstanding loans to local government financing vehicles at the end of March, while loans to the property industry stood at 13 trillion yuan at the end of April, he said. The nonperforming loans ratio was at 0.14 percent at the end of March, Shang said.
A recent review by the National Audit Office indicated that total local government direct and guaranteed debt may have risen 13 percent to 12.1 trillion yuan by the end of last year from the end of 2010, according to Moody’s Investors Service, citing its own calculations based on data in the auditor’s report that showed a 13 percent increase in the debts of a sample of 36 local authorities.
The banking sector’s non-performing loans climbed by 33.6 billion yuan in the three months ended March 31, to 526.5 billion yuan.
That sixth straight quarterly gain marked the longest deterioration streak in at least nine years, according to data released by the banking regulator.