China’s Banking Regulator Calls for Further Improvements to Risk Control Following Disposal of 16T Yuan in NPL’s

The China Banking and Insurance Regulatory Commission (CBIRC) has called for greater efforts to improve internal risk control measures at smaller financial institutions following ongoing efforts to dispose of copious volumes of non-performing loans (NPL’s).

CBIRC deputy-chair Xiao Yuanqi (肖远企) highlighted efforts over the past decade to dispose of NPL’s and contain the Chinese shadow banking sector at a state-run press conference held on 23 June.

“Financial regulatory authorities have firmly prevented and dissolved financial risk, and the blind expansion of financial assets has fundamentally undergone turn around,” he said.

“High-risk shadow banking has fallen by around 25 trillion yuan compared to its historic high, and the disposal of non-performing assets has made major progress, with around 16 trillion yuan processed over the past ten years.”

“We have firmly cleared out [the trend of financial assets] fleeing from the real to the empty; wild increases in leverage, and the use of money to speculate in money.

“In particular, over the past five years the total assets of the banking and insurance sectors have increased per annum on average by 8.1% and 11.4% respectively, lower than the average annual rate of increase in credit extension and bond investments.

“We have fundamentally shifted from empty circulation of funds, towards major increases in the amount of funds directed towards the real economy. Intermediary links have also come under major pressure, and financing costs have fallen.”

In terms of future measures to deal with potential financial risk, Xiao pointed to:

1. Upholding unified reforms and risk disposal, with a focus on corporate governance and systems establishment, and improving the internal risk control capabilities of small and medium-sized banks. CBIRC will implement tailored reform and risk disposal plans for key financial institutions.
2. Continually expanding the ability to dispose of non-performing assets.
3. Driving capital supplementation via multiple channels.
4. Improvements to corporate governance.
5. Strengthening tech capabilities, and driving the digital transformation of small-and-medium sized banks.
6. Optimisation of institutional arrangements.