Sunday, March 1, 2009

China's financial sector steady amid turbulence

February 27, 2009 - By Sapa-AP and Bloomberg

The impact of the global financial crisis on China's banks was limited and the government was taking steps to prevent a rise in bad loans, the industry's chief regulator said on Thursday.

The upbeat assessment was in striking contrast to gloom elsewhere as the US, UK and other governments commit billions of dollars to keep institutions solvent.

"The impact of the financial crisis on China's banking industry has been limited and risks are controllable," said Liu Mingkang, the chairman of the China Banking Regulatory Commission.

The agency would "increase financial support for economic growth and conscientiously" reduce bank industry risk, Liu said.

China keeps its banks isolated from global capital flows. They have little exposure to troubled mortgage securities and other problems that have battered US and European banks.

The non-performing loan ratio at Chinese banks fell to 2.45 percent at the end of December 2008 from 6.17 percent a year earlier, Liu said.

Fitch Ratings said inJanuary loan defaults were the biggest threat to Chinese banks, which faced "a choppy 2009" because bad debts might swell after economic growth slowed to 6.8 percent in the fourth quarter.

Still, domestic lenders offered a record 1.62 trillion yuan (R2.4 trillion) of new advances in January, heeding a government call to help finance its 4 trillion yuan stimulus plan.

Chinese banks increased their combined profit by 31 percent in 2008 to 583.4 billion yuan and their profit growth in 2009 would outperform that of overseas peers, Liu said.

However, he cautioned that Chinese banks could face a "more severe test" as the impact of the global economic crisis spread. The collapse in demand for Chinese goods has caused a wave of factory closures and put more than 20 million Chinese out of work.

Liu said regulators planned to require banks to do more to help smaller firms survive the downturn. "In this financial crisis, small and medium-size enterprises are a very good channel to provide and save jobs," Liu said.

Asked whether Beijing might reduce its purchase of US treasury securities, Liu said only that it would do what was needed to "serve the interests of China".