China’s banking commissioner has warned the country’s city banks over the hidden credit risks related to the mid-tier lenders’ aggressive push into investment products, the Financial Times reports. City commercial banks – the fastest growing segment of China’s banking industry – have been flagged by analysts as a potential hotspot for stress in the financial system. For some of the lenders, the rate at which they have invested in opaque financial products has outpaced growth in traditional lending. Other municipal banks have suffered fraud cases that have left holes in their balance sheets. Shang Fulin, the head of the China Banking Regulatory Commission, warned that banks must reverse the trend in which investments have surpassed lending, noting that complex, highly leveraged products had led to the global financial crisis.
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