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Wed, Apr 07, 2004 - Page 12 News List

China warns small institutions against unbridled lending


China warned on Tuesday the country's small and medium-sized commercial banks risk serious financial trouble if they continue their present rate of unbridled lending.

"Sufficient capital adequacy, favorable market conditions, sound governance and quality risk management are prerequisites for expansion -- without these, banks' expansion cannot be sustained and they may end up paying dearly," the official Financial News quoted Tang Shuangning, vice chairman of the China Banking Regulatory Commission (CBRC), as saying.

The People's Bank of China and the CBRC have been trying to cool the runaway growth in loans in the past eight months as part of government attempts to control overheating in several parts of the economy.

But China's joint-stock commercial and city banks, classified as "small and medium-sized banks" have seen lending rise much faster than the big four -- China Construction Bank, Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China.

CBRC figures show that at the end of last year, state bank assets were up 13.7 percent at 15.19 trillion yuan, while those of the 11 joint-stock banks were up 27.5 percent at 3.82 trillion yuan.

One-hundred and twelve city commercial banks saw their assets rise 25.4 percent at 1.46 trillion yuan.

The jump led last month to the central bank to raising the required deposit reserve ratio on some of the country's 11 joint-stock commercial banks and 112 city commercial banks by 0.5 percentage points to 7.5 percent.

Tang said joint-stock banks and city commercial banks were more exposed to risks from related-party transactions and interference by local governments than state banks.

He urged second and third-tier banks to exercise caution to avoid the "failures of state banks in previous years" and warned them to make sure that assets remain liquid enough to prevent a cash crisis.

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