PBOC urges banks to boost liquidity management

Bankers now worried over a potential Chinese financial crisis.

The People’s Bank of China claims overall liquidity in the domestic banking system is at a reasonable level, a signal that China will not inject more liquidity despite recent credit crunch.

PBOC called on financial institutions to improve “awareness about preventing risks” and to "strengthen their analysis and forecasting about factors affecting liquidity.”

It repeated Premier Li Keqiang's previous calls to "make active use of existing funds" to support the economy. The central bank asked lenders to prudently manage liquidity risks that may result from overly fast credit asset expansion.

"All financial institutions should... maintain credit growth at a stable and moderate level," it said.

It also urged large commercial lenders to cooperate with the central bank to stabilize the market.

The rates banks charge to borrow from each other eased on June 21 after jumping into double figures on June 20 amid rumors the central bank had pressured lenders to release funds. Chinese shares slumped 5.30% on June 24 in response to the PBOC statement.

Policy makers had refrained from injecting more liquidity -- owing to fears about a growth of bad debt -- which has in turn weighed on the economy.

"The worries (over liquidity) have now escalated to worries over a potential Chinese financial crisis," Shen Jun, a Shanghai-based analyst with BOC International.