AUTHORITIES in China proposed to tighten supervision over its biggest lenders, calling for an annual review of the financial institutions deemed as systemically important.

The regulators, led by China’s central bank, Tuesday released new draft rules setting out the annual release of a list of systemically important lenders as well as more details on their scoring system.

China is seeking to contain risks in the US$43 trillion financial system as slowing growth has helped drive bad debt to levels not seen in 15 years. The government is cracking down on transgressions at small banks, which are the most vulnerable. It has seized a bank earlier this year and also bailed out others after earlier curbing the shadow banking system.

The regulators will score commercial and policy banks based on metrics including their on- and off-balance sheet assets, interbank operations, branch network, wealth management assets, securities available for trading, and offshore debt.

The list of names will be submitted to the Financial Stability and Development Committee, which is chaired by Vice Premier Liu He, by the end of every August.

China’s banking sector grew riskier over the last year, with about 13 percent of the nation’s 4,379 banks and other financial firms considered “high risk” by the central bank.

Five-hundred and eighty-six banks and other financing firms, mostly smaller rural institutions, were deemed highly risky in the 2019 China Financial Stability Report, published by the People’s Bank of China on Monday evening.

One bank got a “D” this year, meaning it went bankrupt, was taken over or lost its license. No banks were named in the report.

The health of China’s small banks has become a growing concern after the seizure of Baoshang Bank in May.

With the economy growing at the slowest pace in almost three decades and the trade tensions also hurting firms, the outlook for the banking sector remains challenging as efforts to boost growth and help struggling small businesses threaten to squeeze lending margins and lead to a pileup of bad debt.

While foreign and private banks are seen as relatively safe, more than one third of rural lenders were rated “high risk,” according to the report.

Some medium and small-sized financial institutions have received poor ratings because of the slowing economy, with small lenders more sensitive to macro economic changes, it said.

The central bank has notified each bank of its rating, and required some banks to increase capital, reduce bad loans, limit dividends and even change management, the report said.

The central bank has made positive progress in containing financial risks in the past year, but warned that some potential threats can hardly be eliminated in a short time.

Financial risks can “occur easily” and at a more frequent pace as economic growth slows and the possibility increases for global growth to fall.

Faced with this complex situation, the central bank should “stay cool-headed” and balance economic growth and risk control, it said.

Into 2020 — the final year in a three-year campaign to contain financial risks — the central bank said it’ll “fine-tune” its policies in line with changes in the economic situation, and pay attention to ensuring macro policies aren’t too tight or too loose. The general direction of financial risk control will stay unchanged, it said.(SD-Agencies)