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China regulator asks banks to assess liquidity position, credit risks

SHANGHAI (Reuters) - China's banking regulator has asked banks to inspect how they monitor their liquidity positions and how much credit risk they are carrying, according to a notice seen by Reuters.

The move comes amid concern that many Chinese firms are struggling to handle their debts. On Sunday, Premier Li Keqiang told the annual parliament meeting that China is erecting a "firewall" against financial risks.

According to the undated notice, local branches of the China Banking Regulatory Commission (CBRC) were asked to guide lenders in the use of creditor committee systems to properly deal with large credit risk events and effectively safeguard their claims.

The regulator asked banks to look into the credit risk of loans, bonds, investments, lending to financial institutions and off-balance sheet business.

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The CBRC wants banks to focus on real estate firms and ones in industries with overcapacity to whom they have lent more than 50 million yuan ($7.25 million), according to the notice.

It said self-inspection reports should be given by the end of March to the CBRC, which will provide a credit risk report at the end of May.

The CBRC was not immediately available for comment.

According to the notice, the regulator will focus on banks that had a more than one percentage point increase in their non-performing loan ratios in 2016.

The notice said banks should improve their non-credit financing risk management and create a "unified" creditworthiness and risk management system.

Banks "should use scientific methods to assess the impact that credit, wealth management, lending to financial institutions, investment etc. have on liquidity," the notice said.

The banks were asked to perform an assessment of 90-day non-performing loans, evasion of debt, delays in interest payment, the use of bridging loans to delay the exposure of risk and the hiding of non-performing loans.

(Reporting by Shanghai newsroom; Writing by Engen Tham and Winni Zhou; Editing by Richard Borsuk)