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Tuesday, Jun 18, 2024

Chinese lenders focus on risk management amid global banking crisis

Chinese lenders focus on risk management amid global banking crisis

China's top lenders should enhance risk management practices and be more sensitive to macroeconomic fluctuations, senior Chinese banking officials said, in response to a global banking sector crisis that has roiled financial markets.
The collapse of Silicon Valley Bank (SVB) suggests banks should strictly abide by the regulatory requirements and measures of risk management, Xie Xiaoxue, from China Construction Bank Corp's (CCB) credit management department, said.

If not, banks often "would face huge risks," he said in an article published on Saturday in China Finance, a magazine affiliated to the central bank.

"China's commercial banks should constantly improve the organisational structure of risk management and strengthen risk governance with sound and prudent measures," Xie wrote.

The remarks come in the wake of the March 10 collapse of Silicon Valley Bank and failure of Signature Bank in the United States two days later. The state-backed rescue of Credit Suisse (CSGN.S) also forced policymakers to rush to calm investor nerves.

Executives at China's big five banks said during annual results last week the lenders have limited exposure to the banking crisis. Still, they emphasised the need to manage credit, liquidity and market risks.

Xie said that Chinese banks should fully use stress tests and other tools to measure the impact of economic fluctuations and the changes in market participants' financial situations.

That would help banks to evaluate their ability to deal with short-term liquidity suspension or risk events caused by maturity mismatch of assets and liabilities in the medium to long term, he wrote.

In addition, Chinese banks should "hold the bottom line of no systemic financial risks" when acquiring overseas assets, Jiang Jianqing, a former president of Industrial and Commercial Bank of China Ltd (601398.SS), wrote in China Finance.

Jiang said that banks should be cautious when purchasing overseas assets cheaply after a crisis, as problems of the company to be acquired may not be fully visible, which may put great burden on the buyer.

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