BEIJING (Reuters) – China must protect against all handball in off-balance sheet loans in the so-called shadow banking sector, and must have non-executive assets available as soon as possible, the head of the country’s banking and insurance regulator said on Sunday.
In recent years, China has struggled on the shadow bankers, worrying about the hidden risks in the high volume of complex and potentially risky loans in the sector. But because a weakening economy is putting pressure on businesses and individuals, authorities are worried about damages and illegal lending could increase.
Following the outbreak of the new coronavirus this year, high-risk banks with complex structures could make a comeback, wrote Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, in an article published in Qiushi Communist Party magazine.
“A slight relaxation of regulation could lead to a complete overhaul, and all previous efforts would be ruined,” Guo wrote.
Because of the coronavirus epidemic, levies are expected to rebound significantly in the Chinese economy this year, and bad debts from financial institutions could rise substantially, he warned.
Following the “black swan” epidemic, it is inevitable that asset quality will decline, and due to a time lag, the current asset classification has not accurately reflected the real risk, he said.
A “black swan” event refers to an unforeseen event that typically has extreme consequences.
Financial institutions would dispose of non-executive assets as soon as possible, and the coverage would only bring serious consequences, Guo said.
China would also need to implement targeted measures when dealing with institutions with varying levels of risk, he said.
Outside China, external factors could also threaten financial security, Guo said.
Current international cooperation is not ideal, and the U.S. list of entities imposed on some companies, including Chinese companies, has uncertainly added to the global economic recovery and disrupted financial stability and security, he said.
Washington restricts sales of U.S. goods to entities on the entity list.
Report by Ryan Woo and Yingzhi Yang; edited by Richard Pullin
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