China limits banks' risk exposure

China's banking regulator has limited commercial bank's risk exposure to avoid systemic risk.

A commercial bank's risk exposure to an interbank client shall not exceed 25 percent of its tier one capital, according to a document released online Friday by China Banking and Insurance Regulatory Commission (CBIRC).

File photo of the headquarters of China Banking and Insurance Regulatory Commission (CBIRC) in Beijing. [Photo: IC]

The rule states that a bank's total risk exposure to a single non-bank client shall not exceed 15 percent of its tier one capital, while reaffirming that a bank's outstanding loans to such a client cannot surpass 10 percent of its net capital.

The rule, which will take effect from July 1, allows a three-year transition period for banks to reduce risk exposure to interbank clients until reaching compliance.

The new rule will oblige banks to reduce reliance on interbank business and channel more capital into the real economy.

Prevention of financial risk is key for China in what policymakers called the "three tough battles" -- controlling risk, reducing poverty, and tackling pollution.