China banking regulator warns of risks from overcapacity sectors
China's banking regulator asked jointstock banks and city commercial lenders to control exposure to industries suffering overcapacity by boosting risk assessments and collateral valuations, according to two separate notices seen by media.
The country's lenders have seen their non-performing loans more than double in 2015 from the previous year as economic growth slowed to its weakest rate in more than two decades.
In a notice recently circulated to jointstock banks, the China Banking Regulatory Commission (CBRC) asked lenders to assess the credit risk and potential asset losses that loans to borrowers in sectors with overcapacity posed.
A joint-stock lender is a bank whose equity is held by a number of different investors, which can be government-connected or private. In the first notice, the CBRC also asked banks to accelerate their disposal of non-performing loans, investigate innovative ways to handle bad debt and diversify their methods.
At the same time, the CBRC will encourage some joint-stock banks to start investment pilot projects and asset securitisation among other things in order to improve cash flows, the first notice said.
In a separate notice seen by Reuters, the CBRC also encouraged city commercial banks to tighten control of risks connected to industries suffering from over- supply. China's policymakers have taken aim at overcapacity in sectors such as coal and steel production, believed to be responsible for much of the country's corporate debt overhang.
The second notice encouraged city commercial lenders to list domestically or abroad and introduce qualified investors to raise funds.
It also suggested such banks set up liquidity funds. The CBRC did not immediately respond to requests for comment on either notice.
"For firms which are having difficulties, you can refinance, extend payment periods or restructure in order to help them get through difficult times," said one person who had seen the first notice.