Banks to lift their risk game

The Chinese banking industry has been improving the emergency response plan, upgrading early warning systems for financial risks and conducting pressure tests for comprehensive risk management, the China Banking Regulatory Commission said on Friday.

As of the end of June, the nonperforming loan ratio of commercial banks increased to 1.81 percent, up 6 basis points from the previous quarter and 31 basis points from the previous year.

During the same period, loan loss provisions among Chinese financial institutions rose 16.1 percent from a year earlier to 3.47 trillion yuan ($519 billion), and the provision coverage ratio stood at a relatively high level of 161.3 percent, according to the CBRC.

To reduce the existing credit risk, China re-launched a pilot program on NPL securitization this year after halting the business in 2009. Bank of China Ltd and China Merchants Bank Co Ltd issued their first-ever NPL-backed securities in May. One backed by corporate NPLs was worth 301 million yuan, while the other backed by credit card NPLs was worth 233 million yuan.

On June 28, China Merchants Bank Co Ltd issued another securities backed by small and medium-sized companies' NPLs at the size of 470 million yuan, with the statutory period of five years. Among the total, the 360-million-yuan senior tranche was subscribed 1.86 times at an interest rate of 3.98 percent, and the 110-million-yuan equity tranche was sold at a 2 percent premium.