CBRC may tap shadow banking to free up funds

Regulator hints at expansion of financing to help emerging sector industries cope with slowdown

PUBLISHED : Saturday, 07 June, 2014, 1:13am
UPDATED : Saturday, 07 June, 2014, 1:13am

The mainland's banking regulator is considering using various tools to expand loans and financing, including tapping the shadow banking sector, to ease funding difficulties given the slowdown in the economy while carefully managing loan growth and financing risks.

"We understand the current difficulties in financing and high borrowing costs, in particular for micro and small-sized enterprises," Wang Zhaoxing, vice-chairman of the China Banking Regulatory Commission (CBRC), said at a press conference in Beijing yesterday.

More funds should be used to support emerging industries, the agricultural sector, smaller enterprises and the building of subsidised housing and infrastructure, he said.

Wang explained that weakness in economic activity meant monetary policy should support particular sectors in the country's economy. The State Council had announced further measures such as reducing the reserve requirement ratio for banks that devote a certain portion of lending to the agriculture sector and smaller enterprises.

Wang said other tools, including open-market operations and the reserve ratio, would be used to adjust liquidity. The regulator would support development of credit asset securitisation to improve banks' cash flow, Wang said. CBRC also considered easing loan to deposit ratios to allow banks flexibility in increasing credit. Chinese banks' current loan to deposit ratios are capped at 75 per cent.

Wang said the CBRC planned to adjust calculation of the ratio by including certain sources of deposits. But the relaxation was aimed more at adapting to market changes as the current level of mainland banks' loan to deposit ratio was around 65 per cent, far below the ceiling, he said.

Shadow banking could also provide a channel for funding, Wang said.

"Bank lending should not be the only financing channel, but more diversified channels, including shadow banking are needed," he said. Under the shadow banking sector, microfinance companies, trust loans and private equities were also sources of funding supplementing traditional bank lending, Wang added.

"However, some financing activities (under shadow banking) show a lack of effective supervision that may pose risks to the banking sector. While expanding sources of funding, the regulator will also need to tighten regulation," he said.

Wang said the CBRC had told banks to manage risks on property lending, and that the regulator had closely watched real estate market developments.