Regulators Look to Stress Test Chinese Banks

by on April 4, 2014 5:43 am BST

Chinese banks will undergo stress tests by the China Banking Regulatory Commission (CBRC), reported by the Shanghai Securities News. This further suggests that the years of easy money policies, which spurred the vast shadow banking industry, is weakening the institutions creditworthiness.

Bad loans have been in accumulation as a result of suspect lending. According to the CBRC, The non-performing loan (NPL) ratio at Chinese banks have hit a two-year high during the last three months of 2013. The CBRC released a report in February citing “banks should study the risk situation in key regions, focus on certain industries and on important clients,” while two high-profile investment products created through shadow banking nearly collapse earlier this year.

“All (CBRC) offices, supervisory departments, must organize stress tests of banking institutional organizations in a timely manner so as to analyze the impact of unfavorable situations in individual banks and the banking system and urge banking financial institutions to make emergency plans,” said the bank regulator in its February report.

The CBRC was unclear on how the stress tests would be performed or what will be examined.