Banking regulator requires lenders to improve risk management

A Chinese banking regulator has issued revised internal control guidelines for banks to ensure that appropriate risk management controls are adopted, while increasing penalties for any violations, the regulator said on Sunday.

The China Banking Regulatory Commission (CBRC) said in a notice published on its website that guidelines first published in 2002 needed to be updated to take into account changes at Chinese commercial banks.

"The organizational structure and business operations at China's commercial banks have undergone a relatively big change," the banking regulator said in a statement.

"The risks they face are increasingly diverse and internal controls are becoming increasingly important."

The new internal control guidelines cover areas ranging from senior management and board director processes and methods, to internal control responsibilities of audit departments and business units.

Issuance of the guidelines comes days after the country's central bank began a targeted program to make available 500 billion yuan ($81.6 billion) in short-term funds to China's five biggest banks.

China's economy, which posted 7.5 percent growth in the second quarter, continues to show signs of slowing. The country's factory output grew at its weakest pace in nearly six years in August while growth in other key sectors such as retail sales and imports also cooled.

China's commercial banks are also reporting a surge in nonperforming loans.

China's banks reported for the first half of the year an increase in bad loans from the Yangtze River Delta, the country's main export-focused manufacturing belt, as well as the Bohai industrial rim.

The Industrial and Commercial Bank of China, the country's biggest bank, also said 80 percent of new nonperforming loans in the second quarter came from manufacturing and wholesale.

Several lenders said they expect bad loans to continue rising this year, especially from creditors in the steel, wholesale and shipping sectors.

The Agricultural Bank of China has said it had cut loans to customers in steel making and ship building by almost 39 billion yuan.