The risk element of local government funding vehicles is well under control, said Shang Fulin, head of the China Banking Regulatory Commission in an interview with CCTV on Friday.
Shang said in general the risk exposure of lending to local governments is small because most of the loans are long-term and contained by effective regulations and controls.
By the end of June, outstanding loans via local government funding vehicles stood at 9.7 trillion yuan ($1.57 trillion), up 6.2 percent year-on-year.
"Most of the new lending to local government funding vehicles in 2013 went to projects that are in their final phase. As the total amount of lending increases, low efficiency of the use of funds and a lack of solvency may be observed," a note from the commission released on Friday said.
In response to mounting concerns over trusts and wealth management products - which are considered to be "shadow banking" by many people - Shang said the risk element in these products is controllable.
"Growth rates of such products are not significant. The balances of these products are basically the same as that of last year," said Shang.
The balance of wealth management products was 9.08 trillion yuan by the end of June, with non-standard credit assets totaling 2.78 billion yuan, 7 percent short of the level recorded in late March, when the commission released a notice on regulating the wealth management product business of the country's commercial banks.
Lenders need to keep a close eye on their liquidity management, said Shang.
"The liquidity crunch in June was a lesson to lenders that at all times the management of lenders must follow the principle of prudence. Safety and liquidity are always vital in the banking sector and financial system," said a CBRC note on Friday.
Source: Xinhua
