China's banking watchdog will tighten controls to ensure "prudent and effective" growth in bank loans, the China Securities Journal reported on Wednesday.

 

"Although China's economy generally performed well in the first six months, credit risks still exist in relation to bank loans," Chairman Liu Mingkang of the China Banking Regulatory Commission (CBRC) was cited as saying by the newspaper run by Xinhua News Agency.

 

Liu said that keeping a closer eye on two bank indices, the capital adequacy ratio and the loan loss coverage ratio, was top priority for the Commission.

 

The Commission has ordered domestic banks to upgrade their capital adequacy ratio, which measures bank capital in relation to credit exposure, to eight percent. The official bottom-line for the loan loss coverage ratio, which represents funds set aside to cover potential losses in a bank's loan portfolio, is 70 percent.

 

Liu said that banks which have met the requirements must be alert to credit risks in certain sectors and adopt a prudent loan policy. Those who fail to meet the requirements must restrict their loans and optimize their deposit structure.

 

The Commission will help commercial banks build a rational development strategy and develop their asset management, he said.

 

China has promised to fully open its banking industry when a five-year transitional period for the country's entry to the World Trade Organization ends on Dec. 11. Given this background, the Commission will pay increased attention to new economic performance issues, especially the challenges resulting from the fast development of other industries, Liu said.

 

(Xinhua News Agency August 10, 2006)