China's banking regulator Sunday pledged an all-out effort to fight the battle against irregularities, following earlier regulatory measures announced after recent scandals at major banks further exposed weaknesses in the sector.

"The high occurrence of banking irregularities at present is a reflection of deep-rooted problems in multiple areas and we need to enhance our awareness of the severity of the situation in banking cases," Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said in a statement.

Containing the trend of the high occurrence of bank irregularities is an urgent task for both banks and regulators, he said. Liu is calling for an escalation of the campaign against irregularities by the implementation of strict guidelines on operational risk prevention, the enhancing of internal audits, establishing crisis management systems and strengthening supervision of branches.

The commission will increase its work at eradicating bank irregularities, so as to "win the uphill battle against bank irregularities," Liu said.

Corruption and fraud scandals at the Bank of China and China Construction Bank in recent weeks exposed loopholes in their internal control systems and corporate governance structures, and prompted worries that their widely-watched plans for initial public offerings may subsequently be hampered as investor confidence is shaken.

The two State-owned lenders were chosen for a pilot joint-stock restructuring operation at the end of 2003 and received a combined US$45 billion infusion of capital.

The CBRC said last week it would set up a risk warning system for the banking system. It has already established risk-warning guidelines for commercial banks and installed computer systems to automatically detect wrongdoing.

Liu pledged to pay close attention to the new problems emerging from the reforms of the two pilot banks and the Bank of Communications, a joint-stock bank that is also undergoing restructuring, and urged "hard work" at improving their corporate governance and internal control mechanisms.

The official said his commission plans to release guidelines on market risk management of commercial banks and risk prevention rules on popular renminbi-denominated wealth management business during the second quarter.

The commission is encouraging commercial banks to include market risk and operational risk in their risk management platforms to conform with the new Basel Capital Accord, although it has said conditions are not yet right for China to adopt the stricter regulatory rules of the new Accord.

Chinese banks are increasingly exposed to risks in the capital market, especially after many lenders launched renminbi wealth management products, which are typically backed by yields on fixed-income securities, in recent months to woo clients.

Also on the commission's second-quarter agenda are plans to draft implementation regulations on asset securitization, guidelines on the qualification of directors and senior management of banking institutions, as well as rules on due diligence in the disposal of non-performing financial assets, the official said.

Liu called for enhanced research work on new trends in the opening up of the domestic banking sector, as well as urging an early formulation of strategies to cope with the full liberalization of the market at the end of 2006, as the Chinese Government promised to do upon its joining the WTO three years ago.

The official also called upon his fellow banking regulators to shoulder the newly-assigned responsibility of eradicating illegal fund-raising and urged speedy progress in drafting regulatory measures.

(China Daily April 25, 2005)