China regulator cautions top banks on risks

Government wary that uncontrolled lending can increase bad loans and form asset bubbles.

China's banking regulator said Thursday the operations of the country's big lenders are stable, but the banks should still be wary of risks arising from rapid credit expansion and activities such as derivatives trading.

The regulator also joined other ministries in issuing new measures governing the operations of the country's small, lightly supervised financial guarantee sector.

The regulator's comments show Beijing remains on high alert about systemic risks, which would be closely linked to the performance of the country's big lenders, even as it expands its regulatory reach to areas that it previously ignored. New yuan lending grew explosively last year as banks responded to Beijing's economic stimulus program, which has raised widespread concerns about a possible increase in bad loans and the formation of asset bubbles.

The China Banking Regulatory Commission said the country's five biggest state-owned commercial lenders extended CNY4.6 trillion worth of new yuan ($673.84 million) loans last year, and their non-performing loan ratio fell one percentage point over the year to 1.80%. The five lenders accounted for 48% of the CNY9.59 trillion ($1.4 trillion) worth of new loans extended by the country's banking sector last year, based on data issued earlier by the central bank.

View the full story in Wall Street Journal.