BEIJING (Reuters) - China needs to resolve outstanding financial risk, and should counter the risk of a "normal" market fluctuations originating from external shocks, the central bank said Monday, as Beijing prioritize financial stability amid increasing challenges.
Financial markets are very sensitive to the situation of global trade and increased uncertainty in global liquidity, said the People's Bank of China (PBOC) in the statement of financial stability yearly, adding that it would improve supervision of real-time on stocks, bonds, foreign exchange market to prevent the contamination risk of cross sector.
bond defaults may continue, so the authorities must prevent the default risk of triggering a systemic risk, he said, while the penalty rule violations in the securities market will increase.
Beijing has increased the daily supervision and assessment of potential "black swans" and "gray rhinoceros" events that may occur in the future and have a contingency plan ready, because the economic pressure on the rise, according to the PBOC.
China's household leverage ratio rose to 60.4% relative to gross domestic product (GDP) at the end of 2018, reaching the average level of international and posing a risk of debt in some areas and low-income families, according to the annual report.
The central bank reiterated that it will maintain a proactive fiscal policy and prudent monetary policy, as well as applying a larger tax cuts and increase the quota specific local government bond issuance is used to fund infrastructure projects by a large margin.
Looking ahead, the PBOC will adjust the supply of credit to improve both the economy and strike a good balance in achieving growth and fend off risks.
"Overall speaking, China's financial risk has been slowly resolved but the risk is still abundant, after accumulating rapidly in recent years," said the PBOC. He added that the potential risks and problems will be difficult to eliminate in the short term.
At the end of last year, 13.5% of the 4379 China's financial institutions, mostly rural and smaller institutions, rated as "high risk" by the PBOC in the annual review of the industry. That compared with about 10.58% of the institutions that failed 2018 test PBOC.
It is also exploring the development of exit mechanism for shareholders unqualified of rural financial institutions, as well as market-based and diversified approaches to financial institutions to exit the market.
Earlier this year, seizures of government is rare then little known Baoshang Bank and rescue the country from Jinzhou Bank (HK: 0416) and Hengfeng Bank rekindled concerns about the actual health of hundreds of lenders are small in this country because of China's economic growth slowed to nearly 30 years low.
China's big four banks - Bank of China (SS: 601 988), Agricultural Bank of China (SS: 601 288), Industrial and Commercial Bank of China (SS: 601 398) and China Construction Bank (SS: 601 939) - face the pressure is relatively large to meet the standards for total loss-absorbing capacity (TLAC), said the PBOC.
It will coordinate with other departments to roll out the rules to help banks meet the requirements of TLAC on time, he added.