The Bank for International Settlements was founded in 1930. (The Basel headquarters of the Bank for International Settlements (BIS) is shown in our illustration.) It has said in a quarterly report just published, “While strong loan growth in China has fuelled the current economic recovery, it is not without risks.” The credit expansion “raised concerns about excessively loose credit conditions.”
Chinese officials encouraged a $1.3 trillion credit boom in the first 10 months of 2009 to aid stimulus plans, pushing the economy to its fastest pace of growth in a year last quarter. The BIS said a “significant” part of loans doled out by banks may have flowed into equity and property markets.
The credit-fueled increase in investments “may imply additional demand for loans in the future, to complete the underlying project,” the document said. Should China tighten monetary policy, that could “leave projects incomplete and lead to a build-up of bad loans.”
China Banking Regulatory Commission Vice Chairman Wang Zhaoxing wrote in an article published in China Finance magazine that the agency has asked the nation’s larger lenders to increase their minimum capital adequacy ratios to 11%.
Bloomberg reports that the BIS said in its report that China has been among Asian nations that have strengthened guidelines for bank loss provisioning in recent years, in part stemming from their experience during the region’s 1997-98 financial crisis. The bank said, “This has contributed to stronger banking systems in the region.”