August 7, 2020

Regulator Says China’s Banking System Liquid Enough

SHANGHAI — China’s chief banking regulator has said liquidity in China’s banking system is sufficient, and he has pledged to control risks from local government debt, real estate and shadow banking.

Despite a cash squeeze that sent money-market interest rates soaring over the last two weeks, banks have more than enough reserves to meet settlement needs, Shang Fulin, chairman of the China Banking Regulatory Commission, said at a financial forum Saturday.

“Over the last few days, due to multiple factors, the problem of tight liquidity has appeared in the market. But over all, liquidity in our banking system really isn’t scarce,” Mr. Shang said in a speech to the Lujiazui Forum.

Mr. Shang said excess reserves in China’s banking system totaled 1.5 trillion renminbi, or about $244 billion, which he said was more than double the amount necessary for normal payment and settlement needs.

On the issue of banks’ asset quality and, in particular, banks’ exposure to local government debt and the real estate market, Mr. Shang acknowledged risks but said they were manageable.

“Recently, some international organizations and industry insiders have expressed worry about a slowdown in China’s economic growth, local government debt, the real estate market and related areas,” Mr. Shang said. “Currently everyone is fully aware of the risks. As long as we take proper risk control measures, these risks are controllable.”

On local debt, Mr. Shang pledged to closely monitor and control the growth in local borrowing and “alleviate hidden risks.”

Outstanding bank loans to local government financing vehicles totaled 9.59 trillion renminbi at the end of the first quarter, he added.

Amid the cash squeeze last month, the banking regulator repeated previous orders to banks to report all forms of local government debt exposure, including funds channeled through wealth management products.

The central bank, the People’s Bank of China, which had let short-term borrowing costs spike to record highs to drive home a message to banks that they could no longer count on cheap cash to fund riskier operations, said it would ensure policy supported a slowing economy.

He also highlighted the risks of wealth-management products, bank-issued securities that have exploded in recent years as households and companies have searched for higher-yielding alternatives to traditional deposits.

“In reality, wealth management products are investment products. Wealth management products are not the same as savings. Investors have to bear investment risk. When banks do these products, are they clearly explaining the risks to investors?” Mr. Shang said.

Analysts have said many who invest in wealth-management products believe their investments carry an implicit guarantee from state-backed banks, even if no legal guarantee exists.

Bank-issued wealth-management products totaled 8.2 trillion renminbi by the end of the first quarter, of which 70 percent were invested in the real economy.

On the real estate market, Mr. Shang downplayed the risk to the banking system, despite a three-year campaign by the central government to restrain housing prices. Real estate loans totaled more than 13 trillion renminbi by the end of April, of which mortgages comprised about 70 percent, he added.

“Chinese people are creditworthy. The nonperforming loan ratio on mortgages is extremely low, far below 1 percent,” Mr. Shang said.

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