Banks able to cope with new bad loans
(Shenzhen Daily/Agencies)
Updated: 2005-12-08 11:11

Under-utilized production capacity will spawn a new crop of bad loans if the economy turns down, but China's banks will be able to cope, the country's top bank regulator said.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said his agency was working to make banks aware of the risks of lending to sectors saddled with excess capacity, such as steel, copper and construction materials.

"I think there will be some negative impact upon our nonperforming loans control, because during the re-adjustment campaign what we can envisage is that the new flow of nonperforming loans will be increased a certain level," he said.

Liu's acknowledgement that banks will foot part of the bill for China's breakneck investment over the past three years follows a flurry of official comments underlining the authorities' determination to control capital spending in glutted sectors.

Ma Kai, head of the National Development and Reform Commission, China's top planning agency, estimated Chin's surplus steel capacity at 120 million tons.

According to the People's Daily, Ma also said that China had too much manufacturing capacity for aluminum, copper, coke and cars.

"If we don't effectively address the problem immediately, a large number of firms will go bankrupt and many people (will) lose their jobs," Xinhua quoted Ma as saying.

But Liu said that banks were better prepared than in the past to cope with a downturn because they had stepped up risk controls, for instance by using internal ratings and collecting more data about their customers.

"So long as we can raise the banking industry's awareness upon the risks attached and envisaged in the future, especially during the re-adjustment ... to squash the overcapacity, I don/t think it's a big problem," he said.