April 10, 2017 / 10:10 AM / 8 months ago

UPDATE 1-China banking regulator issues risk control guidelines

(Adds background, details)

SHANGHAI, April 10 (Reuters) - China’s banking regulator said on Monday it has issued guidelines on risk control for lenders, as authorities ramp up efforts to contain risks from a rapid build-up in debt.

The move is the latest in a slew of measures taken by China’s regulators to reduce leverage and risk in the country’s banks.

Earlier steps have included reining in wealth management products and probes into assets which are kept off banks’ balance sheets.

China’s banks extended a record 12.65 trillion yuan ($1.84 trillion) of loans in 2016, despite worries about the dangers of prolonged debt-fueled stimulus.

The China Banking Regulatory Commission (CBRC) published the guidelines on its official website, after a Friday news conference which covered the authority’s plans to prevent systematic financial risks.

The guidelines advise lenders to adopt measures such as focusing on loans which have been overdue for 90 days or more, in order to strengthen risk control and maintain asset quality. But they did not go into detail on what specific action should be taken.

Liquidity risk management should be improved by reducing dependence on interbank deposits and enhanced emergency management, the guidelines said.

Bankers were also advised to manage bond market volatility by strictly controlling investment leverage and to strengthen real estate risk control by adopting regular stress tests, among other things.

Fears of a property market crash are growing in China as more cities battle to cool heated housing prices by imposing tougher lending requirements. Mortgages make up nearly a third of big banks’ total loans and properties are often used as collateral for other credit.

The new guidelines aim to “make event more important risk control, to dissipate the risks that the banking industry may face,” according to a question and answer paper that was published on the CBRC website.

“The risks associated with the cross-selling of financial products are down to a lack of co-ordination, lack of integrated oversight and the existence of divided regulatory structures,” Yang Jiacai, assistant chairman of the CBRC, said at the Friday news conference.

Chinese banks’ 2016 earnings reports last month generally showed deteriorating credit quality and high corporate debt leverage continued to be a primary challenge for the industry, as the world’s second-largest economy grew at its slowest pace in a quarter of a century.

Bad loans written off and transferred out by the top five banks along rose by 16 percent last year to 309.6 billion yuan ($44.95 billion).

Reporting by Beijing monitoring desk and Engen Tham in Shanghai; Editing by Kim Coghill

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