China Warns on City Bank Risks as Regulator Cites Global Crisis

  • CBRC’s Shang Fulin tells city lenders to get back to lending
  • City banks should simplify, focus on main business: Shang

China’s banking regulator told the nation’s city banks to learn the lesson of the global financial crisis and get back to their traditional businesses, building pressure for the lenders to curb opaque shadow financing.

“City commercial banks should change as soon as possible the situation of allocating more funds into investing than lending, and developing their off-balance-sheet businesses too fast,” Shang Fulin, the chairman of the China Banking Regulatory Commission, said in a transcript posted on the agency’s website.

Shang’s speech to a city commercial bank conference was dated last Friday. He urged the lenders to stick to the principle of simplifying and going back to their “main” businesses, citing this as the mainstream approach around the world in the aftermath of the global financial crisis.

Bank of Tangshan is a prominent example of the off-loan-book wizardry that turbo-charges the growth of some small and mid-sized banks. Traditional loans accounted for less than a quarter of the lender’s assets and a “marginal proportion” of credit risk, UBS Group AG said in a report in June. The lender declined to comment when Bloomberg reported on the bank in August.

“The city commercial banks should be aware that they neither have the ability nor the negotiating edge to compete with the big banks” in arranging financing for big clients, Shang said.

Dotted across China from Harbin in the north to the tropical island of Hainan in the south, the nation’s more than 130 city commercial banks have piled into shadow lending just as bad loans are rising. Shang’s comments add to efforts by the government to contain the risks. 

One of the next of the smaller lenders to tap capital markets may be Bank of Shanghai Co. The bank said that it plans to raise at least 10.5 billion yuan ($1.6 billion) in an initial public offering in Shanghai to boost capital.

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