China's banking regulator will step up financial risk control by increasing attention on banks' governance, capital adequacy ratio, risk management of loan concentration, provision coverage ratio, and information transparency, a senior official said Tuesday.

Concern should go to issues including long-term loans and concentration of credit, Wang Huaqing, disciplinary secretary of the China Banking Regulatory Commission, said at a press conference in Beijing jointly held by the China Banking Association and PricewaterhouseCoopers.

He called on Chinese banks to stick to the management principal of "rationality, steadiness and prudence" as there are still uncertainties in the global economy.

He noted the financial crisis originated from misuse of financial derivatives, but innovation is the momentum to push the development of the financial system. Banks should not ease prudent management while developing financial derivatives, he said.

Wang's comment came amid the recent concern that a surge in bank loans in the country, boosted by the moderately loose monetary policy, might pose a risk to the nation's lenders, which might damage the stability of the financial system.

Chinese banks advanced a record 7.73 trillion yuan (US$1.13 trillion) of new loans in the first seven months of this year, exceeding the full year target of 5 trillion yuan, after the government eased lending restrictions in November to stem a slowdown in the world's third largest economy.

China's bankers increased their concern over financial risk management after the dramatic growth, according to a survey released at the conference, which interviewed 81 chairmen, presidents and vice presidents of Chinese banks. The survey didn't say how many and which banks were involved.

They said the amount of bad loans might rise but the bad loan ratio would remain low, according to the survey. About half of these bankers said the bad loan ratio of their banks will be between 1 percent to 5 percent in three years, and about 30 percent of these bankers said the bad loan ratio will be kept below 1 percent.

The fast growth of credit would not bring big risks to Chinese banks, some said, as these loans went to sectors backed by the government such as state key projects, energy conservation and emission reduction, technological innovation.

It was also because the money was used in the real economy to meet real demand from the country's urbanization and industrialization, they said.

However, some banks' executives warned of possible risks from the surge of lending because the economic recovery is not firm yet, overcapacity is still severe and the concentration of loans to some infrastructure projects and local projects is becoming evident.

When talking about the future focus of financial business, about 80 percent of the bankers chose to lend to small and mid-sized enterprises, the survey showed.

Ba Shusong, deputy head of financial research at the Development Research Center, a think tank under the State Council, said there is potential in the market for lending to small and mid-sized enterprises, and banks can consider expanding lending with risks under control.

(Xinhua News Agency September 9, 2009)