China is capable of ensuring financial stability and preventing systemic risk despite the expansion of nonperforming loans, according to a senior banking official.

A slowing economy, high corporate debt and property oversupply in smaller cities have all prompted questions to be asked about the quality of Chinese banks’ balance sheets.

To dispel such concerns, Wang Zhaoxing, vice-chairman of the China Banking Regulatory Commission, said the banks have increased their ability to withstand risks with a provision coverage ratio of 180 percent and capital adequacy ratio of 13 percent.

"The risks are manageable and will not lead to systemic financial risk," he said at the China Development Forum on Saturday.

But the banking official admitted that volatility in the stock and foreign exchange markets have made it more difficult for the regulator to manage risks and liquidity in the financial sector.

He said the banking regulator is also carefully watching out for spillover risk from the property market to the banking sector.

China has been considering debt-for-equity swaps to help banks get rid of bad loans from loss-making companies and reduce corporate leverage by allowing the banks to swap the debt they hold for companies’ stock holdings.

Yet Wang described such swaps as "a very complex issue".

"We have to reduce the debt burden of companies while preventing moral hazard and ensuring the asset safety of the banks," he said.

Wu Xiaoling, deputy director of the Financial and Economic Affairs Committee of the National People’s Congress Standing Committee, said China should develop a multi tiered capital market to expand direct financing and reduce the corporate debt ratio.

A former vice-governor of the People’s Bank of China, Wu also expressed concerns about the aggressive quantitative easing policies adopted by other central banks, which she said could lead to a new credit boom and bust.

"I am more worried about the excess reliance on monetary policy globally, which could help accumulate financial risks," she said.

Wu said negative interest rates, as seen in the eurozone and Japan, will "offer no help to the real economy".

"It will only spur speculative trading for short-term profits," she said, adding that the only solution will come from accelerating structural reforms, adjusting the supply and demand structure and boosting the real economy through technology and innovation.