Daily Lessons from Life 19 September 2009

"China bank regulator warns of loan risksPosted: 19 September 2009 2152 hrs

BEIJING : China's bank regulator has called on the nation's banking sector to step up risk management and strengthen compliance as explosive credit growth is leading to greater risks.

"With bank loans growing rapidly, all kinds of risks are rising in the banking industry," Liu Mingkang, chairman of China Banking Regulatory Commission, said in the statement posted on the commission's website Friday.

"Financial institutes in the banking industry must do their utmost to uphold the standard management limits and strike a solid basis for risk management."

In an effort to counter the global financial crisis, Chinese banks issued 8.15 trillion yuan (1.2 trillion US dollars) in new loans in the first eight months of the year, exceeding a five trillion yuan target set for 2009. The aggressive lending has sparked concerns that some of the money has not been used to help the real economy, but has instead been put into asset markets for quick profit.

The country's stock market surged 90 percent in the first seven months of this year before tumbling nearly 20 percent in the past month as policy-makers urged a slowdown in credit. Home purchases in major cities also hit record highs in recent months. Besides ordering the banking industry to set up compliance with regulatory rules, Liu also warned of upcoming changes in international finance regulation standards, the statement said.

Policymakers have acknowledged concerns that asset bubbles may be building up. But Su Ning, the central bank's vice governor, said on Thursday that China would continue to implement an "appropriately loose" monetary policy into next year as the economy is still in a critical stage of recovery."

Lessons for me are:

1. credit makes the 'capitalist' world go round, even in a communist country! The Chinese business people are very quick to take advantage of loose credit and some will benefit immensely and these people will have no qualm about leaving a carnage of destruction of those who were not as nibble as them in maneuvering;

2. the officials, who are learned and astute, know the risks and yet is lax in enforcement. The mind is willing but the flesh is weak? Personally I believe it is a greater failing if we know about the risk and yet not matching our enforcement efforts to minimize the risks identified;

3. there will be grave consequence should the feared bubbles did form in the stock and property markets. At least 90% of the participants will lose badly while the top 10% will be winners of enormous gain. You decide which party you belonged!

May the burst of the bubbles never happened. As if they did, it will be another disaster!

It is hard to be right and do the right thing!!