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A call for diversity in lending procedures

By Zheng Yangpeng (China Daily) Updated: 2014-05-27 07:12

Akhtar agreed that shadow banking in China is a "very serious problem", but she cautioned that an excessive crackdown could discourage the development of the country's capital market.

A call for diversity in lending procedures

"I don't think the issue is so much about the nonbank financial sector because, strictly speaking, it should really be included in overall capital market development. What is a problem in most countries is that the bulk of financial intermediation derives from banks," she said.

To make sure banks thrive, strong corporate governance, due diligence in extending credit and equal treatment of State-owned enterprises and private-sector ones are crucial, she stressed.

"The clear evidence I've found over the years is that if you privatize banks, and if there are good strategic shareholders and good management, actually private companies definitely do much better than SOEs," she said.

While praising the ongoing financial reform program in China as "very impressive", she also stressed it is important that "the sequence is carefully managed", especially when the traditional model is so entrenched.

"My experience as a central bank governor led me to understand that the process (interest rate liberalization) is very complicated, especially for a country the size of China. Establishment of a deposit insurance system is important, because ultimately someone has to cover the risk in cases of bank failures," she said.

It is also important to have the proper dynamics that will allow other reforms to happen along with interest rate liberalization, she noted.

 

 

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