China must pay more attention to cutting its consumer leverage ratio due to rising risks in the financial sector from the rapid growth of household debt, according to the top banking watchdog.

The country has emphasized the need to cut corporate and government debt, but “we’ve noticed that the consumer leverage ratio also needs lowering”, Guo Shuqing, chairman of the China Banking Regulatory Commission, said on March 9.

The term refers to the ratio of a household’s total debt to its personal disposable income.

“Currently, people aren’t highly alert to the problem that individual and household loans for home purchases and investment have been growing at a rapid rate. It’s very dangerous,” Guo said on the sidelines of this year’s session of the National People’s Congress in Beijing.

“China has a high savings rate. It used to be a huge advantage, but we’ll lose that advantage if borrowing grows faster than savings,” he added.

His comments came on the same day that Pan Gongsheng, vice-governor of the People’s Bank of China, said the central bank had also noticed that both home mortgage loans and the consumer leverage ratio were rising too fast.

In addition to deleveraging, Guo said regulators will step up efforts to restore market order and control cross-sector financial risks, with a focus on shadow banking activities, such as interbank business and off-balance-sheet business.

The commission will also further regulate the trust business and online financing, both of which are weak links in the banking sector, he said.

Putting some off-balance-sheet lending into the framework of balance-sheet management is a “normal and beneficial” structural adjustment and will not have a major bearing on interest rates, Zhou Xiaochuan, governor of the central bank, said on March 9.

China has strengthened financial regulations and broadened regulatory oversight to include products not counted on the balance sheets of financial institutions, such as so-called wealth management products, to forestall financial risks.

Zhou said the adjustment is based on normal regulatory and accounting requirements and will not affect overall financial figures.

The rectification began last year and has already taken effect, according to authorities, which reported a sharp decline in interbank assets and liabilities. By the end of January, the volume of wealth management products was up by only 1 percent year-on-year.

Off-balance-sheet business had also shrunk, and the volume of trust loans and entrusted loans was decreasing.

“These changes tell us that the trend of bank funds flowing from the real economy to the virtual economy has been contained,” Guo said.