China's banking authorities yesterday published a new
supervisory regulation for foreign-invested banks in a bid to get a
more comprehensive picture of their growing operations as well as
risk levels.
Starting next month, foreign banks are required to provide
consolidated operations reports of their Chinese branches twice a
year to the China Banking Regulatory Commission (CBRC), it said.
China-incorporated foreign-invested banks are now required to
report their global operations as a whole.
Previously, the branches reported them on a separate basis,
which foreign banks complained was inefficient.
By the end of October last year, 62 foreign-invested banks had
entered China and opened 191 operational entities. And the number
keeps growing.
"This has posed a challenge to continued effective supervision,
and requires regulators to be clear about every foreign bank's
overall operations and risk levels, and properly assess their
business strategies and risk management capabilities," a CBRC
spokesperson said.
The old supervisory methods are not only ineffective, but have
caused repetition of regulatory work, he said.
Requiring banks to report consolidated operations will help
regulators identify common problems among their branches and the
influence of their parent banks on operations in China, the CBRC
said.
Analysts say Chinese regulators need to keep a closer eye on
foreign banks as they are increasingly integrated into the Chinese
economy.
Starting on December 1 last year, 84 out of the 191 foreign
banking entities were allowed to provide renminbi services to
Chinese corporate clients, following years of foreign exchange
operations.
"Now they have directly entered the economic cycle," said Wang
Yuanhong, a senior analyst with the State Information Center.
"Their integration with the financial industry has moved to a
higher level, and their economic influence is bound to
increase."
Foreign banks have been active in the Chinese market and have
been major borrowers of foreign loans. Foreign financial
institutions, mainly foreign banks, borrowed US$58.6 billion in
foreign debts in the first nine months of last year, which
accounted for 81 per cent of China's total new foreign liabilities
in 2003, official statistics indicated.
Most of China's new foreign borrowings were short-term debts,
which alerted its foreign exchange regulators who believed
expectations for a revaluation of renminbi were a major reason
behind the rapid foreign debt increase.
Expectations for a stronger yuan have been driving dollar
inflows into China, pushing its foreign exchange reserves to
unprecedented levels and fuelling monetary expansion last year.
In their half-yearly reports, foreign banks are now required to
analyze their lending activities, affiliated transactions,
cross-border fund flows, bad loan provisions as well as capital
adequacy ratios.
"Implementing consolidated supervision on foreign-invested banks
is of great significance," the CBRC spokesperson said.
(China Daily March 9, 2004)