China regulator says banks have passed the ‘most difficult’ period

BEIJING (Reuters) – Chinese banks have passed their “most difficult” period, though they still face huge pressure, a senior official of China’s banking regulator said on Thursday.

The view comes as China’s largest banks have started reporting better earnings this year, after successive quarters of rising non-performing loans and narrowing margins.

The improved results follow Beijing’s introduction of a series of measures to help struggling borrowers, such as debt-for-equity swaps.

But while there’s been better performance by the country’s largest four listed state-owned lenders, their smaller counterparts continue to report tepid results.

Yu Xuejin, chairman of the supervision panel for important state-owned financial institutions at the China Banking Regulatory Commission (CBRC), said a decline in non-performing loans “is not a short-term thing, but is a trend”.

“The most difficult period for banks is over,” he told a finance forum in Beijing.

Banks’ balance sheets will continue to expand in the long run, said Yu.

The regulator also said banks need to deal with a raft of new measures aimed at controlling risk and leverage in the financial system, with everything from lending practices to shadow banking under the microscope.

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