* Regulator says sufficient liquidty to meet settlements
* Local govt loans at 9.59 trn yuan at end-March
* Bank WMPs outstanding reached 8.2 trn yuan at end-March
* Real estate loans at 13 trillion by end-April
By Gabriel Wildau and Samuel Shen
SHANGHAI, June 29 China's chief banking
regulator said on Saturday that liquidity in China's banking
system is sufficient and pledged to control risks from local
government debt, real estate and shadow banking.
Despite a cash squeeze that sent money-market interest rates
soaring over the last two weeks, banks have more than enough
reserves to meet settlement needs, Shang Fulin, chairman of the
Chinese Banking Regulatory Commission (CBRC), said at a
financial forum on Saturday.
"Over the last few days, due to multiple factors, the
problem of tight liquidity has appeared in the market. But
overall, liquidity in our banking system really isn't scarce,"
Shang said at a speech to the Lujiazui Forum in Shanghai
Shang said total excess reserves in China's banking system
totaled 1.5 trillion, which he said was more than double the
amount necessary for normal payment and settlement needs.
On the issue of banks' asset quality and, in particular,
banks' exposure to local government debt and the real estate
market, Shang acknowledged risks but said they were manageable.
"Recently, some international organizations and industry
insiders have expressed worry about a slowdown in China's
economic growth, local government debt, the real estate market,
and related areas," Shang said.
"Currently everyone is fully aware of the risks. As long as
we take proper risk control measures, these risks are
controllable," Shang said.
On local debt, Shang pledged to closely monitor and control
the growth in local borrowing and "alleviate hidden risks".
Outstanding bank loans to local government financing
vehicles totaled 9.59 trillion yuan at the end of the first
quarter, Shang said.
Amid the cash squeeze earlier this month, CBRC repeated
previous orders to banks to report all forms of local government
debt exposure to regulators, including funds channelled through
wealth management products (WMP).
The central bank, which had let short-term borrowing costs
spike to record highs to drive home a message to banks that they
could no longer count on cheap cash to fund riskier operations,
said it would ensure policy supported a slowing economy.
On the topic of WMPs, which have exploded in recent years as
households and firms have searched for higher-yielding
alternatives to traditional deposits, Shang said the development
was positive but also highlighted risks.
"In reality, wealth management products are investment
products. Wealth management products are not the same as
savings. Investors have to bear investment risk. When banks do
these products, are they clearly explaining the risks to
investors?" Shang said.
Analysts have said that many WMP investors believe that many
products carry an implicit guarantee from state-backed banks,
even if no legal guarantee exists.
Bank-issued WMPs totaled 8.2 trillion yuan ($1.34 trillion)
by the end of the first quarter, of which 70 percent were
invested in the real economy.
Though Shang did not elaborate, the comments implied that
the remaining 30 percent was invested in interbank assets, whose
explosive growth was a key factor in the recent interbank
On the real estate market, Shang downplayed the risk to the
banking system, despite a three-year campaign by the central
government to restrain housing prices.
Real estate loans totalled more than 13 trillion yuan by the
end of April, of which mortgages comprised about 70 percent,
"Chinese people are creditworthy. The non-performing loan
ratio on mortgages is extremely low, far below 1 percent," Shang
($1 = 6.1376 Chinese yuan)
(Editing by Michael Perry)