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CBRC: Sub-prime impacts limited on banking sector

By Ding Qi (chinadaily.com.cn)
Updated: 2008-09-27 17:38

The latest US financial turmoil led by mortgage troubles has limited impacts on China's banking industry thanks to strict supervision and cautious banking operations, the country's top banking regulator said.

Speaking at a recent bankers' meeting, Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said the US credit crunch may at most knock off some profit from Chinese banks this year, but will not hurt their core capital.

According to Liu, when mortgage problems showed signs of escalation, the CBRC immediately asked domstic banks to check and disclose the risk exposure of subprime-related investments. Estimates so far have shown the exposure amount is not too large and the direct losses will be limited.

He attributed this first to proper and swift financial supervision as well as regulators' precautionary measures taken with a view to the country's macro-economic situation.

As early as 2005 and 2006 when the property and the bond markets flourished with the booming Chinese economy, the banking regulators sensed a risk of overheating and worked out a series of measures to prevent the hazard from spreading in the banking sector. The moves include forbiding stock investments with bank loans, lifting the threshold and the cost of buying a second house, etc, according to Liu.

Meanwhile, the country's separate operation policy for the finanical sector have effectively prevented risks from flowing between the banking system and the capital market, he said.

At the meeting, Liu also shared some lessons drawn from the financial turbulence. According to him, banking regulators should never neglect various risks accumulated amid economic prosperity, especially the cross-market risks caused by complicated financial derivatives.

Meanwhile, operations with higher liability ratios and excessive fund raising via capital markets can both cause serious damage to the financial system and the substantial economy, Liu said.

In a highly globalized financial market, no economy can be fully exempt from a world-wide financial crisis, therefore, international cooperation on finanical surveillance is necessary to maintain global stability, he added.