Tougher banking oversight due in ‘arduous’ fight

China will step up oversight in the banking sector this year to reduce financial risks, the country’s banking regulator said, stressing that long-term efforts are needed to control banking sector chaos.

The China Banking Regulatory Commission (CBRC) said late on Saturday in a statement that its priorities include increasing supervision over shadow banking and interbank activities.

“Banking shareholder management, corporate governance and risk control mechanisms are still relatively weak, and root causes creating market chaos have not fundamentally changed,” the CBRC said.

“Bringing the banking sector under control will be long-term, arduous, and complex,” it said.

The regulator said violations in corporate governance, property loans, and disposal of non-performing assets will be penalized more strictly, and it will strengthen risk control in interbank activities, financial products and off-balance sheet business.

China has vowed to clean up disorder in its banking system.

In recent months, regulators have introduced new measures aimed at controlling risk and leverage in the financial system, with everything from lending practices to shadow banking under the microscope.

Already in January, the CBRC has published regulations that put limits on the number of commercial banks that single investors can have major holdings in.

The government is particularly concerned about the massive shadow banking industry, lending conducted outside of the regulated formal banking system.

It fears that a big default or series of loan losses could cascade through the world’s economy and lead to a sudden halt in bank lending.