Although the global financial crisis has not directly impacted upon domestic and overseas lenders in China, they are raising their liquidity, capital adequacy, and provisions for bad or doubtful loans.

They are also highly aware of risks at a time as uncertainty mounts, and are displaying greater caution when issuing new loans.

Because they are less involved in international markets, China's banks have withstood the financial storm that has hit hard in the US and Europe.

Zhou Xiaochuan, China's central bank governor, said on Sunday that the nation's financial institutions are generally strong with increased profit-making and risk-prevention abilities, while market liquidity on the whole is ample, and the financial system is safe and sound.

But given the worsening global financial crisis, overseas lenders, especially those not allowed to accept renminbi deposits from local residents, would like to make sure they have adequate liquidity.

"We raised interbank lending and borrowing from the central bank to guarantee long-term yuan capital," said Hiroshi Takayama, vice-president of Bank of Tokyo-Mitsubishi UFJ (China).

As a bank mainly serving companies from its own country, the Japanese lender also has to deal with changes in transactions because some of its clients are in industries hit hard by the credit storm.

In addition, more banks in China are preparing for economic problems resulting from a decline in exports to the United States and Europe.

British lender Standard Chartered Bank, one of the first overseas banks to develop unsecured loans for Chinese small and medium-sized enterprises (SMEs), is highly aware of risks in export-oriented companies and has turned its attention to players with major sales in the domestic market.

"We are keeping a very close eye on risks at the moment," Christine Ip, China head of the lender's consumer banking business, said. "We are moving our unsecured loans to certain industries, such as machinery and manufacturing. Those clients are more focused on the domestic market."

In some areas, Standard Chartered organized inspections to expose risks.

The British bank asked its client managers to pay visits to its clients to see if they are in supply chains that have been hit hard and make timely adjustments such as requiring clients to provide real estate as mortgages.

"We have various systems to reduce the risks," Ip said. Before issuing new loans, the bank will carry out a careful investigation of the company, including an analysis of the industry and supply chain the company belongs to.

A series of financial statements are required to secure the loan, said Ip, whose bank has also raised the interest rate for loans issued to SMEs. "That is out of risk concerns."

Wang Shihao, vice president of Bank of Shanghai, a lender serving a great many SMEs in the Yangtze River Delta region, said: "Exports are slowing and many SMEs have closed down."

Under these circumstances, Chinese banks are enhancing risk management, preparing with wider provision coverage and being stricter with new lending, he said.

Some small players in China are even venturing further to reduce the risks.

Rabobank, active in China's food and agriculture businesses, has employed independent investigators to collect more information from potential clients.

(China Daily October 30, 2008)