(Yicai Global) Dec. 7 – China's central bank, the People's Bank of China (PBOC), responded on its official website today to reports by the International Monetary Fund (IMF) and the World Bank, saying their evaluation of China's financial system is objective and fair, but the relevant statement on stress testing fails to fully reflect the test outcomes.
The stress testing of the banking industry the assessors conducted based on internationally-accepted practices shows, in the extreme scenario, the core tier-one capital adequacy ratio of the tested banks that account for over 65 percent of their total assets can nevertheless remain at over 7 percent, demonstrating the strong risk resistance capacity in China's financial system, PBOC countered.
On the quality of assets in the banking industry, PBOC said non-performing loan ratio remained at a relatively low level thanks to stricter verification and intensified disposal the banks have conducted in recent years. Profits of enterprises, including state-owned enterprises, have risen steeply this year, and many local government debts also correspond to assets with future cash earnings, leaving little room for undervaluation of the non-performing loan ratio, the central bank added.
The IMF released its Financial System Stability Assessment (FSSA) on China yesterday. The report highlighted three problems with China's financial regime at present: credit expansion, complexity and guarantees, all of which threaten stability, and suggested a gradual and targeted increase in bank capital in view of banks' core position within the financial system. The IMF further recognized that the Chinese government has already taken countermeasures in this area, including stiffening systemic risk monitoring, further improving supervision and steering toward more functional regulation. The IMF also recommended that the goal of financial stability be accorded highest priority to ensure effective regulation of risks.
The report on China's financial system is objective and pertinent and its recommendations are of some reference in deepening financial reform, PBOC said. Chinese government agencies will continue to advance deepened reform and sound development of the financial sector, effectively prevent and control risks, and strengthen cooperation and exchanges with international organizations to contribute more to upholding stability in the global financial system.