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Reuters:

My question is also about risk. We have noted the rapid expansion of non-loan assets on bank balance sheets over the last five years, and particularly joint start-ups and city banks. In some cases, these non-loan assets surpass loan asset on bank balance sheets. How is the CBRC moving to control risks in the financial system? Can we expect the growth of these assets to diminish?

Guo Shuqing:

We’ll categorize them based on various conditions, drawing conclusions by taking into consideration the differences of banks and products. However, generally speaking, we follow the fundamental principle of scrutinizing those assets that appear on the balance sheet. I’ll ask my colleague to provide more details.

Wang Zhaoxing:

In recent years, in line with market-centered financial evolution, market- oriented reform of interest rates has progressed, and comprehensive development of banking businesses is underway. They have actually brought about two major changes: rapid growth of non-credit assets that, in fact, have come to outweigh credit assets and the expansion of off-balance sheet businesses that end up outperforming those on the balance sheet. They have emerged as a result of the increasing driving force coming from the market, as well as the deregulation of interest rates. There are also supervisory bodies attempting to decentralize banking risk by encouraging multiple bank assets and debts as well as diversified profit revenues.

Besides, the role of the market has been increasingly accentuated; this, entails the growth of bank extra-services and market-oriented and intermediary businesses. We treat them differently as they are not entirely negative compared to those involved in schemes shunning supervision, getting involved in arbitrage and circulating banking loans inside the financial system rather than handling them in the real economy.

Moreover, we in no way seek to oppose and interrupt the diverse developments of banks, yet we should be increasingly vigilant about possible risks. When doing so, we will first encourage further development of banking credit services either by loans or other approaches to ensure funds are dispensed in support of the real economy. Second, we’ll make sure risks are transparent and controllable. Third, we will secure the sufficiency of reserves and capital in a bid to offset potential dangers. As a result of China’s financial progress, market development and emergence of multiple banking services, those businesses cannot be simply described as right or wrong. However, at the same time, we will observe the issue from the three aspects I mentioned above to improve supervision and regulation. Thank you.

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