China bank regulator allays fears on liquidity, says debt risks manageable

SHANGHAI (Reuters) – China’s chief banking regulator said that liquidity in China’s banking system is sufficient and pledged to control risks from local government debt, real estate and shadow banking.

Despite a cash squeeze that sent moneymarket interest rates soaring over the last two weeks, banks have more than enough reserves to meet settlement needs, Shang Fulin, chairman of the Chinese Banking Regulatory Commission (CBRC), said at a financial forum yesterday.

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

Shang said total excess reserves in China’s banking system totaled 1.5 trillion, 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, 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,” Shang said.

“Currently everyone is fully aware of the risks. As long as we take proper risk control measures, these risks are controllable,” Shang said.

On local debt, 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 yuan at the end of the first quarter, Shang said.

Amid the cash squeeze earlier this month, CBRC repeated previous orders to banks to report all forms of local government debt exposure to regulators, including funds channeled through wealth management products (WMP).