China will deepen its efforts to prevent and mitigate financial risks, with its banking regulator making the war on financial risks its top priority this year, officials said.

“Currently, financial risks are one of the most prominent and major type of risks in China … The country is still facing relatively huge pressure for a possible rebound in nonperforming loans, and the inventory of shadow banking activities is still fairly large, with frequent occurrence of law and regulatory violations,” said Xiao Yuanqi, chief of the prudential regulation bureau of the China Banking Regulatory Commission, at a news conference on March 2.

Moreover, some financial institutions lack sound corporate governance. Their equity management and the behavior of their shareholders are not standardized, Xiao added.

“Therefore, the China Banking Regulatory Commission will make the war on financial risks its top priority this year,” he said.

The fight against financial risks, he pointed out, will focus not only on the investigation and rectification of violations of laws and regulations, but also on filling regulatory gaps and building a long-term mechanism for risk prevention and control.

In spite of his confidence in effectively controlling credit risk in the banking sector when China’s economic growth has stabilized and improved, Xiao said the banking regulator is still concerned about the outlook for credit risk in 2018 due to several unfavorable factors.

For example, he said, some banks hid the real figure of their distressed assets by measures of cheating.

The CBRC has stepped up efforts for examination, identification and punishment of violations of financial laws and regulations since 2017 and has severely punished a number of banks and relevant employees.

“The penalties gave a strong warning to banks and significantly improved their compliance awareness,” said Wang Zhaodi, chief of the CBRC’s on-site examination bureau.

To further tighten its control over asset management products, the banking regulator will cooperate with the People’s Bank of China, the central bank, to revise the existing rules on asset management products and provide guidance to banks on making a steady transition during the changing of rules, said Li Wenhong, head of the banking innovation supervision department of the CBRC.

Based on the overall requirements of the new rules on asset management products, the CBRC has combed through its regulations in this aspect and drafted detailed rules on banks’ wealth management products. It will introduce them at the right time, Li said.

Under tighter regulations, banks have seen a more sustainable trend of growth in their wealth management business. As at the end of 2017, the outstanding volume of banks’ wealth management products reached 29.5 trillion yuan ($4.65 trillion), increasing by 1.7 percent year-on-year.

The growth rate was 22 percentage points lower than that during the same period of 2016, according to the CBRC.