Regulator focuses on risk prevention
By Zhang Dingmin (China Daily)
Updated: 2004-04-20 08:38

China's top banking regulator said yesterday that risk prevention remains a major task for the country's trust companies in the years ahead.

The China Banking Regulatory Commission said 57 trust companies had completed their new registration process by the end of last year, following four years of government-led restructuring.

It added that the firms' business income notched up a year-on-year increase of 97 per cent in 2003.

"Overall, after four years of consolidation, trust companies have reinvigorated themselves ...their risk resistance capacity has improved... their trust business is recovering," said a commission press release.

The 57 restructured trust firms' own assets now total 99.4 billion yuan (US$11.9 billion), and they manage 163.5 billion yuan (US$19.7 billion) of trust assets.

Although Chinese trust companies grew rapidly in the 1990s, mismanagement and rampant irregularities led to painful consolidation across the industry and the sensational closure of the bankrupt Guangdong International Trust and Investment Company.

The trust firms were required under the consolidation to increase their capital bases and cut their non-performing assets from their securities business, which they are now no longer allowed to take part in.

Trust companies have gathered pace in launching new projects over the past two years, many of which are real estate or financial trusts.

Analysts said trust companies are becoming increasingly involved in the booming property market as real estate developers turn to them to raise funds for new projects out of frustration with banks' stricter loan policies.

One example of this is the Beijing-based China Credit Trust Co Ltd, which issued three real estate trusts and a bank asset trust to the public last year, distributing another 100 million yuan (US$12 million) real estate trust earlier this month.

But analysts warn that fresh risks are brewing in the sector, as fast-growing real estate investment is likely to push property prices to unsustainable levels, meaning that the new trust deals could be at risk of being unable to repay investors.

Real estate is one sector the government has warned is showing signs of overheating.

"New risks will be created when prices get too high and real estate becomes impossible to sell," said Zhao Xijun, vice-director of the Finance and Securities Institute at Renmin University of China.

Some trust companies also promised investors a minimum return, which is illegal and likely to lead to disputes, he said.

The commission yesterday cautioned against new risks accumulating in the trust industry, pointing to irregularities at "some of the re-registered companies."

The commission said it will closely scrutinize trust firms for irregularities including promising minimum returns, misappropriation of funds and transactions with affiliated entities.

It also pledged to pay special attention to "the highly risky areas of stock markets and real estate."

The commission said it will urge trust companies this year to improve corporate governance and internal control mechanisms, strengthen supervision of senior management, enhance transparency and strive to complete the relevant legal framework.

Earlier reports said trust companies are co-operating to create an association of trust firms, a move which they hope will enhance self-discipline in the industry and communication with the public.

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