A draft law on banking supervision, being discussed by China's top legislature Saturday, pushes for increased emphasis on banking risk management by China's bank watchdogs.

The draft has introduced some of the Basle Core Principles for Effective Banking Supervision, internationally-accepted rules for banking supervision put forward by the Basle Committee on Banking Supervision and sponsored by the Bank for International Settlements.

China's banking supervision policies will shift from simply monitoring the legitimacy of operations to putting equal importance on both legitimacy and risk control, said Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), while elaborating on the draft law at the fourth session of the Tenth National People's Congress (NPC) Standing Committee.

Under the draft law, the CBRC shall set up effective guidelines to minimize financial risks for commercial banks, and exercise cross-border banking supervision together with bank watchdogs of other countries and regions.

"The draft law will be a critical step for China to introduce globally-accepted rules, and we expect to see a more open market here," said Dicky Yip, chief executive of China business at the Hong Kong-based Hongkong and Shanghai Banking Corporation.

But the draft law should adopt more detailed items on how the CBRC shall develop guidelines to minimize banking risks, said Wang Yiming, an NPC Standing Committee member.

Wang, who joins other members at the NPC session to discuss the draft law, added that, so far, the item is too obscure.

The draft law has such problems as weak regulation of the operation of the bank watchdog itself and being unclear about the legal liability it should bear, said Li Lianning, another NPC Standing Committee member.

Under the draft law, the CBRC is authorized to oversee all banks and financial institutions in China, investigate illegal banking operations and administer punishments for violations of the law.

Since the CBRC was founded on April 28 this year, the new bank watchdog has carried out a series of measures to control banking risks, including probing the non-credit operations of the four state-owned commercial banks.

It has announced that all domestic banks, both state-owned and joint-stock ones, are required to adopt the commonly-accepted rule to sort loans into five grades, from best to worst, next year.

Experts here noted that domestic banks in China still carry large non-performing loans, and that there is only a short time left for the country to deal with the problem before foreign banks enter the market vigorously.

According to the CBRC, domestic banks reported a 19.6 percent non-performing loan rate by the end of June this year, totaling 2. 54 trillion yuan (307.13 billion US dollars).

"It is of great significance for China to have such a law, to cope with increasing risks in banking when China is opening further its financial market," said Yan Yixun, member of the NPC Standing Committee.

However, some top legislators said it is still too early to draw up a banking supervision law.

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