China considers new rules for smaller banks to limit risk: report

[BEIJING] China is considering new rules for the country's small-to-medium financial institutions to reduce risk in the wider economy, following a number of state bailouts of smaller lenders, the state-run Economic Information Daily reported on Thursday.

The report, citing a source in the People's Bank of China(PBOC), said the rules could require high-risk financial institutions, local governments and the country's regulators to jointly take on the responsibility of risk resolution for smaller banks.

The PBOC, the country's central bank, would also encourage merger talks, instead of bankruptcies, when dealing with problematic financial institutions, the report added.

"The central bank will diversify its policies and dismantle the bomb based on the cause and nature of the risks," the report quoted the source as saying.

The government is considering the new framework as the slowing Chinese economy has led to increases in sour loans, smaller capital buffers and falling reserves.

A shock government-led takeover of little-known Baoshang Bank in May was the first in a series of rescues, including of the Bank of Jinzhou, which received backing from three state-controlled financial institutions including the country's largest lender Industrial and Commercial Bank of China (ICBC).

Earlier this week, financial newspaper 21st Century Business Herald reported that China's state-owned Central Huijin Investment is taking a stake in Hengfeng Bank. The PBOC said that move would enhance the capital adequacy and corporate governance of Hengfeng.

No timeframe was given in Thursday's report for the introduction of any potential new rules.

REUTERS