''Chinese banks largely healthy despite potential risks''
From Anil K Joseph
Beijing, Nov 12 (PTI) Despite "potential risks" from bad debts, China''s banking sector remains largely healthy and market-oriented reform will be continued prudently, according to top finance officials.
"The banking system''s risk is under control and the non-performing loan ratio, 0.97 per cent, is low," Shang Fulin, chairman of the China Banking Regulatory Commission, told reporters.
Bank lending is not concentrated on any high-risk investment projects, and most of the loans have mortgage guarantees, Shang said.
Sound earnings and the prevention of risk is the basis for domestic banks, he said at a press conference organised during the ongoing National Congress of the ruling Communist Party of China that will select the new leadership this week.
Total debts of Chinese banks will rise from 191 per cent of GDP at the end of 2011 to 206 per cent by the end of this year, according to a report by Standard Chartered Bank.
The report also said that the country will have public debt at 58 per cent of GDP by the end of 2012. Consumer debt will stand at 19 per cent of GDP, and corporate debt at 128 per cent.
Meanwhile, Zhou Xiaochuan, governor of the People''s Bank of China, the apex bank, urged alertness to potential risks, especially shadow banking, as banks diversify financial products and services.
Shadow banking, as the name suggests, mainly refers to credit access outside the regular system.
In China, it usually involves wealth management products, underground finance and off-balance-sheet lending.
"Shadow banking is inevitable when banks are developing their business," Zhou said. "But there are fewer problems here than the shadow banking sector in some developed countries that have been hit by the global financial crisis."
In an article for China Daily published in October, Xiao Gang, chairman of Bank of China, said that shadow banking was like a Ponzi scheme.
A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or the money paid by subsequent investors.
Chinese banks are also priming themselves to steadily expand international business as the yuan becomes more of a global currency.
Industrial and Commercial Bank of China plans to increase the number of international branches as it focuses on mergers and acquisitions to become a multinational group, Jiang Jianqing, the bank''s chairman said.
The lender is the world''s largest in terms of market value.
"The growth in the overseas market is even faster than domestic business," Jiang said.
The bank, he said, has earned USD 864 million from its overseas operations in the first half of this year.
As Chinese banks expand overseas, the central bank is pushing direct transactions between the yuan and other currencies to facilitate cross-border trade and investment.