China regulator cautions banks of loan risks

China Banking Regulatory Commission continues to tighten bank lending as liquidity problems remain as threats.

China's banking regulator warned of increasing risks to the country's banking sector from bad debt, highlighting continuing concerns about deteriorating banking assets after last year's explosive credit growth.

The comments indicate the regulator will continue to tighten bank lending, especially to sectors of the economy it views as carrying higher risk such as the property market.

The China Banking Regulatory Commission gave an outlook for this year in its 2009 annual report, published on its website. CBRC has urged banks to control risks for a while, but it has rarely acknowledged publicly that the risks of a rebound in nonperforming loans are rising, although some analysts have repeatedly cautioned about that.

"Domestically, the soundness of the banking sector is being tested by the increasing pressure of an NPL rebound, by the potential credit risks associated with lending to local-government financing platforms, and by the real-estate sector and industries with excess capacity," the 128-page report cited CBRC Chairman Liu Mingkang as saying.

"Internationally, fundamental flaws underlined by the recent global financial crisis have not been resolved," Mr. Liu added.

View the full story in the Wall Street Journal.