BEIJING (XFN-ASIA) - Credit risk remains the top concern for commercial
banks as China tightens monetary policies, the China Banking Regulatory
Commission (CBRC) said.
"There are many factors of instability in the 2008 macroeconomic
environment... affected by the crisis of confidence in US financial markets and
domestic inflationary pressures," the CBRC said in its annual report, published
on its website.
"Credit risk is the top risk. Operating risk, including legal and reputation
risk, is important. Market risk is a real risk, and liquidity risk must be paid
attention to."
Rapid economic growth and high levels of liquidity in the banking industry
point to strong performances by Chinese banks, but operating pressures and
potential credit risk continue to rise, the CBRC said.
Credit risk has emerged in some sectors due to macroeconomic controls and
adjustments to the export tax rebate policy, while uncertainty in capital
markets will further increase financial risk.
China's banking industry has not run through a complete test of the economic
cycle, and bad loans may rebound because of economic fluctuations, the CBRC
said, adding that there is increasing pressure for a rise in bad loans.
Domestic commercial banks will also be exposed to exchange rate and interest
rate risk mainly due to expectations of a yuan appreciation.
The CBRC said it will "prudently support" domestic banks in their overseas
expansions, but it noted that banks should carefully consider their business
strategy and competitiveness and avoid expanding blindly.
Meanwhile, the CBRC said most domestic banks are not adequately prepared for
diversified operations in areas like securities, insurance and fund management.
The commission reiterated that it will accelerate reforms in Agricultural
Bank of China and China Development Bank, and support further consolidation of
urban credit cooperatives into city commercial banks.
zachary.wei@xfn.com
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xfnzw/xfntm
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