PBC Photo:Xinhua

Yi Gang, governor of People's Bank of China, the central bank, has urged financial institutions and shareholders to take main responsibility in tackling risks, according to media reports on Wednesday.    

In a recently published article, Yi said that "financial institutions and shareholders, as market entities, should assume the main responsibility for independent operation, self-responsibility for profits and losses, and 'self-rescue' risks."

Yi further noted that bailouts were a special arrangement in a particular period of history, while "self-rescue" should be the main way to deal with financial risks at present and in the future.

The remarks draw widespread attention with many financial news sites reposting the article. Preventing major financial risks has become a top priority for Chinese economic policymakers in recent years.  

To tackle risks, financial institutions should establish a market-based capital replenishment mechanism, make provisions in accordance with regulatory rules, increase the disposal of non-performing assets, and build a healthy balance sheet, Yi said.

The nation needs to improve the incentive and restraint mechanism, respect the independent management of financial institutions, and reduce administrative intervention in their business activities. At the same time, it must promote the orderly market exit of insolvent institutions, he noted.

It is reasonable to clarify the main responsibilities of financial institutions in tackling financial risks, which could further promote the healthy development of the firms and the sector, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Wednesday.

As market entities, financial institutions should bear responsibility for addressing their own operating risks, Dong said.

China has sought to tackle financial risks in recent years. More than 12 trillion yuan ($1.65 trillion) of non-performing assets in the banking sector were disposed of from 2017 to 2021. The efforts have continued this year, including addressing risks in the financial sector and in large-scale enterprises, Yi said in a report on October 28.

Financial risks are generally converging and under control, with banking, insurance and securities industries generally remaining stable, Yi said.

As of June 2022, the total assets of financial institutions stood at 407.42 trillion yuan, maintaining reasonable growth. Commercial banks had a 14.87-percent capital adequacy ratio and a 1.67-percent non-performing loan ratio, while insurance companies had a 220.8-percent average comprehensive solvency ratio, all substantially above regulatory standards.

Global Times