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)