BEIJING, Mon: China’s top banking regulator warned today that a downturn in industries suffering overcapacity would have some negative impact on banks’ controls of non-performing loans (NPLs) but it would not present a major problem. Liu Mingkang, chairman of the China Banking Regulatory Commission said regulators and the banks were working to increase awareness of risks attached to certain sectors of the economy, such as steel, copper and construction materials — industries that are the focus of concerns about overcapacity.
Banks should be able to weather the storm as the Government worked to cool overheated sectors, he said when asked how they would cope with a downturn. “I think there will be some negative impact upon our control of NPLs, because during the re-adjustment campaign what we can envisage is that the new flow of NPLs will be increased a certain level,” Liu said.
“Awareness is a very important thing. So long as we can raise the banking industry’s awareness upon the risks attached and envisaged in the future, especially during the re-adjusment ... to squash the overcapacity, and I don’t think it’s a big problem.” Liu said banks had witnessed shifts in economic cycles in China in the 1980s and 1990s so had some experience in coping with overcapacity problems.
The regulator also had encouraged banks to step up risk controls, including internal ratings and corresponding data collection as well as strict requirements on capital adequacy ratios. “I think all the banks will be alert enough for further changes because they are ready,” Liu said. — Reuters