China's banking regulator said Tuesday that the ability of banks to manage risk will be a factor in granting market access, raising a new potential obstacle for foreign lenders eyeing the Chinese market. "The international financial crisis exposed a number of problems in the reputation of risk management at commercial banks," the China Banking Regulatory Commission said when issuing the new regulations.
Banks operating in China must now set up special teams and contingency plans to bolster risk management and reporting to guard against potential reputation-damaging events, the regulator said when publishing the new guidelines on its website. Such events include anything that could trigger massive losses to the banking industry, market volatility or affect social stability, according to the guidelines, which took effect immediately.
The regulator will "take into account how commercial banks manage their reputation risk in approving market access," it said, without elaborating. Banks must be responsive to media queries, closely monitor public sentiment and report any event affecting the reputation of the bank, or the sector as a whole, to the regulator within 12 hours, it added.
However, the agency's Shanghai branch said in April that complaints about foreign banks' wealth management products were a problem in the first quarter as global markets reeled due to the financial crisis. Complaints against foreign lenders accounted for almost one-tenth of the total 1,291 complaints against banks in the first three months of the year, the Shanghai branch of the commission said at the time.
The guidelines also apply to policy banks, asset disposal companies, rural credit co-operatives, trust firms and financial leasing companies, the commission said. Financial institutions globally are to face tougher regulations to avoid sudden collapses like those which occurred a year ago, precipitating the financial crisis and massive state support packages for big banks in several major economies.