March, 08, 2010

China's banks might face risks if finance arms set up by local governments to invest in real estate and infrastructure projects cannot repay heavy borrowing, a deputy central bank governor said Monday.Regulators have told banks to examine outstanding loans to such financing vehicles, said Su Ning at a news conference. He declined to give details of their debt levels but said such entities accounted for a "very high proportion" of bank lending last year.

"This could have potential risks, because some vehicles have fiscal backing from local governments but many local governments have problems with their fiscal balances. Some vehicles have no profits," Su said.Premier Wen Jiabao warned Friday that China's banks and public finance system face growing risks after a record surge in lending last year, when state-owned banks were told to step up credit to support Beijing's stimulus.

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