China banking watchdog vows action to tackle bad-loan risk

BEIJING (Reuters) - China's banking regulator pledged to work harder to head off the risks of a possible rise in non-performing loans, in particular from industries plagued by overcapacity.

The comments from the China Banking Regulatory Commission's (CBRC) chief, Shang Fulin, are the latest official warning on financial risks as the government pushes ahead with structural reforms.

Shang said in a meeting with bank executives in the southeastern province of Fujian that banks must seek various channels to safely dispose of bad loans in industries facing acute overcapacity problems.

"We must make more efforts to prepare for a possible rise in non-performing assets and explore market-based options to pack and transfer bad loans," Shang said, according to a statement of his speech posted on the CBRC's website on Monday.

"Banks must also seek various channels to clean up bad loans by industries with overcapacity to prevent new risks from brewing," he added.

To pursue a more sustainable growth model and eventually rebalance the economic structure, Beijing this year has intensified a campaign to reduce overcapacity pressure in several industries.

The China Banking Association had said in an annual industry report that bad loans at Chinese banks could rise by between 70 billion yuan (7.2 billion pounds) and 100 billion yuan in 2013 partly due to delinquency risks from industries plagued by overcapacity.

The association singled out the steel, photovoltaic and shipping sectors as being at the forefront of a potential new crop of bad loans.

Official data showed China's non-performing loan ratio for commercial banks stayed at 0.96 percent at the end of June, unchanged from the level at the end of March.

According to third-quarter reports, some commercial banks saw small increases in their ratio of non-performing loans. small.

Industrial and Commercial Bank of China Ltd (HKG:1398) last week said its ratio was 0.91 percent at the end of September, compared with 0.87 percent three months earlier.

China's fifth-biggest lender, Bank of Communications (HKG:3328) , reported an NPL ratio of 1.01 percent at end of September, from 0.99 percent at the end of June.

At the Fujian meeting, Shang of CBRC reiterated the policy of cutting new credit lines to projects in areas of severe overcapacity. Banks are also banned from providing new credit to such projects through issuing wealth management products.

He also urged banks to take action as soon as possible to not lose the best opportunity to keep bad loan risks from rising.

(Reporting by Aileen Wang and Jonathan Standing; Editing by Richard Borsuk)