Appointment sign of government push for financial overhaul: expert
The newly appointed chief of China's top banking regulator vowed on Thursday to tackle chaos in the financial system and encourage the banking sector to help facilitate the country's supply-side reform, a move experts said signals the government's determination to push forward financial reforms and boost the real economy this year.
Guo Shuqing, making his first public appearance as chairman of the China Banking Regulatory Commission (CBRC), said at a State Council press briefing on Thursday that he will prioritize risk control in 2017.
"Some cross-market financial products were not transparent, and no one knows the destination of where capital is flowing," Guo said, noting that the phenomenon was a result of loopholes in relevant regulations.
To address the issues, Guo will coordinate with financial authorities, including the People's Bank of China, the country's central bank, to update rules that no longer fit the status quo in the financial sector based on changes in banks' business and risk management, he said.
However, Guo rebutted rumors that he would lead a consolidation of the central bank and the three commissions.
As of January, China's banks held 228 trillion yuan (.12 trillion) in assets, up 14.4 percent year-on-year, while liabilities rose 14.6 percent to 210.5 trillion yuan, according to data the CBRC released on Monday.
Meanwhile, the value of Chinese commercial banks' outstanding non-performing loans (NPL) reached 1.5 trillion yuan by the end of 2016, with its NPL ratio at 1.74 percent, according to CBRC data on Thursday.
Industrial overcapacity and micro- and small-sized enterprises will continue to pose credit risks to commercial banks, according to a report issued by Bank of Communications in December 2016.
But the risk is still under control, said the analysts, estimating that the NPL ratio in 2017 will range from 1.8 percent to 1.9 percent.
Xu Gao, chief economist at China Everbright Securities Co, told the Global Times on Thursday that Guo's comment reflects the government's determination to tighten supervision on off-balance sheet business in the debt-ridden banking sector, especially shadow banking activities which remain largely unregulated.
"In the past few years, lured by high yields, Chinese financial institutions has pumped a large amount of money into areas which they are not allowed to participate in, some taking the form of wealth management products," Xu said, noting that such moves add to the financial system's leverage.
However, those illegal activities are hard to detect and investigate because they usually involve the supervision of more than one financial regulator, experts said.
As mixed operations across different financial areas have become a trend in the banking sector, the CBRC, the central bank, and the securities and insurance regulators are expected to work more closely to curtail potential financial risks, Xu predicted.
During the press briefing, Guo noted that the banking sector should actively participate in the government's supply-side reform.
One of the incentives is to launch market-oriented debt-to-equity swap reform, which can "greatly help leverage reduction," according to Guo.
The implementation of debt-to-equity swaps will be guided by laws and markets, and there will be no state orders or official targets set for the volumes, Guo said.
"Some companies in the real economy sector with skilled technologies are now plagued with financial difficulties. The debt-to-equity swap program can not only relieve their debt burdens and operation risks, but also optimize their assets structure," Liu Xuezhi, an economist with the Bank of Communication, said Thursday, noting that the program is also a boost to China's real economy rejuvenation.
More than 430 billion yuan in debt-to-equity swap deals have been signed as of early February, Guo said. Those deals were reached based on decisions made between banks and companies.
According to the banking regulator, 12,800 debt committees have been set up to be creditors of troubled firms in China to help with debt restructuring. Debt committees are organizations set up within banks to assist with a company's debt restructuring.
During his tenure as top stock market regulator in 2013, Guo developed a reputation as an economic reformer.
Experts widely consider Guo's appointment as a sign that China is determined to overhaul the country's debt-burdened financial system.