China set to implement banking reforms

19 June 2012

Further reforms are set to be implemented in the Chinese banking industry in an attempt to stimulate economic activity, it has emerged.

Officials in Beijing are finalizing plans that would see financiers able to convert loans in to securities in order to boost lending, the Daily Telegraph reports.

Such an alteration in financial policy would involve as much as Rmb50 billion ($7.8 billion) being removed from lenders' balance sheets as decision-makers look to follow up on their call to cut interest rates for the first time in four years earlier this month.

However, many experts believe such as step would be ineffective, with one telling the news source the situation is "looking very nasty".

"This could very well turn into the 'hard landing' everyone has been worried about," they added.

In addition, analysts at CreditSights believe Chinese banks are facing problems because they grappling with the "unfamiliar challenge" of mobilizing the deposits they need to find their "desired rate of loan growth".

By Tony Aynsley

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