UPDATE 1-China to increase scrutiny on wealth management products
* Regulator reiterates efforts to control loans to LGFVs
* CBRC vows to ensure credit flows to real economy (Adds regulator comments)
BEIJING, April 24 (Reuters) - China will heighten oversight on wealth management products in 2013 by taking a closer look at money flows off banks' balance sheets to reduce financial risks at a time when growth is slowing in the world's No. 2 economy.
The China Banking Regulatory Commission (CBRC) also said on Wednesday it remained committed to cutting risks from loans to local government financing vehicles (LGFVs) this year, but stopped short of any detailed action.
"We will increase regulation on the structure and sales of wealth management products and keep monitoring where the money is channelled," the CBRC said in its latest annual report.
Last month the regulator ordered banks to strengthen checks on the underlying assets of a range of wealth management products, and limited such assets to 35 percent of banks' total outstanding wealth management products, or 4 percent of their total assets, whichever is lower.
Market concerns and regulators' warnings over risks in China's fast-growing wealth management sector came to a head late last year after one instrument sold through Hua Xia Bank failed to pay its annualised return, and China's CITIC Trust announced a payment delay on one of its products.
The CBRC also said it would increase efforts to prevent credit defaults, to control the sizes of loans to LGFVs and improve Chinese banks' lending structures, while guaranteeing sufficient funding for key projects under construction.
Almost 40 percent of loans to LGFVs will come due by 2016 and the outstanding amount of local government debt was estimated at 10.7 trillion yuan by the end of 2010.
CBRC Chairman Shang Fulin has previously warned that a fresh spending push this year by local authorities will make it even harder for banks to limit their new lending to LGFVs.
The Chinese economy grew 7.7 percent in the first quarter from a year earlier, below expectations and sharply contrasting with a nearly 60 percent rise in the country's total social financial, a broad measure of liquidity.
That raised worries that credit is not going into the real economy.
"We will keep a good track of the usage of bank loans to make sure bank credit is flowing into the real economy," the CBRC said in the report. (Reporting by Aileen Wang and Kevin Yao; Writing by Langi Chiang,; Editing by Jonathan Standing & Kim Coghill)
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