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Banks' risk in debts of local govt finance under control

2010-06-02 11:51

The risk entailed in local government finance platforms' debts is still under control, according to commercial banks' primary review on such investment agencies, Shanghai Securities News reported.

The Central Government ordered a review of investment agencies run by local governments amid warnings that banks might face problems if they cannot repay multibillion-dollar loans. The China Banking Regulatory Commission (CBRC), the country's banking regulator´╝îsaid it will conduct a spot check on banks' records in the third quarter.

Insiders of China Citic Bank, SPD Bank, Bank of Communication, Shenzhen Development Bank and Guangdong Development Bank told the paper that the risk from loans to such agencies, known as "finance platforms" was under control.

Bank of China, the country's No 3 lender by assets, said the review was still on the way and would be finished at the end of June. The bank's loans through local government finance platforms would not have a large impact on its assets' quality, the bank's President Li lihui told China Business News.

In addition, CBRC prohibited banks from lending to government finance platforms for constructing new projects not in the 4-trillion-yuan stimulus package, the paper said, quoting people familiar with the situation.

Most of the banks have also become very cautious about issuing such loans. Some commercial banks had suspended all trust loans to local government finance platforms in order to control potential risks, according to media reports.

China's state banks lent a record 9.6 trillion yuan ($1.4 trillion) in 2009, while local government finance platforms accounted for a "very high proportion" of last year's bank loans, said Su Ning, a deputy central bank governor. The World Bank and China's central bank say commercial banks could face losses if the investment agencies, known as "finance platforms," cannot repay their debts.

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