BEIJING (REUTERS) - China is still studying plans for potential regulations that would allow commercial lenders to swop non-performing loans (NPLs) of companies for stakes in those firms, the head of the country's banking regulator said on Wednesday (March 16).

The proposed regulations would reduce commercial banks' NPL ratios and bolster their capital reserves. NPLs surged to a decade-high last year as China's economy grew at its slowest pace in a quarter of a century.

Reuters last week reported that China's central bank was preparing the regulations, citing sources with direct knowledge of the policy. The rules would get special approval from the cabinet, thereby skirting the need to revise commercial bank law that bars lenders from investing in non-financial institutions, the sources said.

"We are studying the plan and it's not as simple as some reports said," Shang Fulin, chairman of the China Banking Regulatory Commission (CBRC), told reporters ahead of the closing session of the annual meeting of parliament in Beijing.

"Commercial banking law restricts banks from investing in non-banking common firms," he said. "Banks can't hold shares of those firms. Money at banks consists of deposits from normal people and firms. This money does not belong to banks. Banks can't simply use this money to invest."

Official data showed banks held more than 4 trillion yuan (S$845.9 billion) in NPLs and "special mention" loans, or debts that could sour, at the end of last year.

On paper, the proposed regulations would also be a way for indebted companies to reduce their leverage, cutting the cost of servicing debt and making them more worthy of fresh credit.