China's banking regulator stresses focus on guarantee business

13:36, June 16, 2011      

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The China Banking Regulatory Commission headquarters in Beijing. (Photo / China Daily)

The China Banking Regulatory Commission (CBRC) will require banks to examine their guarantee business throughout July to prevent the risky practices of some guarantee companies from spreading to commercial lenders, said the banking watchdog on Wednesday.

It is also planning to start spot inspections of banks in the coming months to avoid risks associated with financing guarantee companies, said Zhu Yongyang, deputy director-general of the financing guarantee department at the CBRC.

He said a document has already been drafted to bar bank staff members and people who have close ties to them from setting up or assigning specific guarantee companies for the bank's business.

Concerns over guarantee companies have been rising since some of the companies sought to profit by offering loans with interest rates higher than 50 percent, while bank credit was tightened to curb inflation and enterprises were thirsty for capital to maintain operation.

In coastal city Xiamen, Fujian province, local media reported that in two months' time the practice got three guarantee companies trapped in non-performing loans ranging from 300 million yuan ($46 million) to 3 billion yuan.

It is illegal for guarantee companies to lend directly to debtors instead of through banks, and this should be carefully monitored and punished, said Zhu.

The fees charged for guarantees stayed below normal levels.

Usually, the rate for financing guarantees stand at 50 percent of banks' lending interest rates, he said. "In 2010, guarantee rates were on average 2.2 percent of lending interest rates."

Another document to help the industry grow healthier will come out within this month to encourage private capital to play a bigger role in helping small and medium-sized enterprises (SMEs), said Zhu.

"The overly scattered industry should be consolidated and the scale of the companies needs further expansion."

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Source:China Daily
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