The China Banking Regulatory Commission (CBRC) yesterday pledged to strengthen its regulation of foreign banks operating in the country, with a focus on risk supervision.

"Generally speaking, foreign bank operations in China remain smooth and stable, but certain risks still demand attention,'' said Liu Mingkang, president of the newly-established top banking industry watchdog at yesterday's Foreign Bank China Head Meeting.

He made a promise at the meeting, the first of its kind since 1979, that his commission will further improve its supervision capability concerning foreign banks by referring to the Core Principles for Effective Banking Supervision.

The Core Principles, recognized as global standards for prudent regulation and supervision in the banking industry, were issued by the Basel Committee on Banking Supervision in September 1997 and endorsed by the international financial community during the annual meeting of the International Monetary Fund and the World Bank in Hong Kong in October 1997.

Wang Zhaoxing, a CBRC director who is in charge of foreign bank affairs, elaborated at the meeting that the commission's regulation on foreign banks in the coming years will focus on how to help prevent their potential risks.

According to Wang, 24 foreign banks in China saw their non-performing loan rate exceed 20 per cent, with seven of them having the rate climb as high as 90 per cent.

Wang also cautioned that a few foreign financial institutions had reported fraud profitability and violated the country's banking industry regulations while operating their business in China.

Wang therefore pledged to enhanced regulation on new financial products launched by foreign banks in the coming years, with special attention to be paid to "those troublesome banks.''

Raymond Yu, head of the Bank of East Asia's China Office yesterday gave a nod to the CBRC's resolution yesterday. But Yu also made a plea on behalf of the country's foreign banks at the meeting, saying that the CBRC needs to enhance its communications with its to-be-established provincial branches so as to stick to uniform regulation standards across the country.

"China's financial market is no doubt enormous but we expect for a unified banking regulation around the country, which will facilitate our expansion in the Chinese market,'' said Yu.

CBRC statistics show that banks from 19 countries and regions have set up 184 institutions on the Chinese mainland, with a total registered capital of US$41.2 billion.

Nine cities have allowed qualified foreign banks to provide RMB services.

And five foreign banks have approved as Qualified Foreign Institutional Investor (QFII) custodians, according to the commission.

The Chinese Government will stick to its commitments to the World Trade Organization to gradually open its financial markets, said Liu.

"We will maintain a clear and stable regulated banking environment to further encourage foreign banks to continue to invest and participate in the development of China's banking sector,'' he said.

In another development, CBRC yesterday afternoon signed a co-operative memorandum with its Hong Kong Monetary Authority in Shanghai.

The memo followed the previous one signed by the CBRC and the Monetary Authority of Macao last Friday in Beijing.

Under the two memos, the CBRC will closely co-operate with its counterparts in Hong Kong and Macao to jointly handle financial risks and propel the healthy development of China's banking industry.

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