(28 June 2013 – China) The People's Bank of China (PBoC) has called on financial institutions to improve “awareness about preventing risks” and to “strengthen their analysis and forecasting about factors affecting liquidity.”
Banks have been urged to boost liquidity as management bankers worried over a potential Chinese financial crisis.
PBoC has claimed overall liquidity in the domestic banking system is at a reasonable level, a signal that China will not inject more liquidity despite the recent credit crunch.
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 21 June after jumping into double figures on 20 June amid rumors the central bank had pressured lenders to release funds.
Chinese shares slumped 5.30 percent on 24 June 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.