Mainland China’s banking regulator moves to contain off-balance-sheet risk
Authorities tighten scrutiny of lenders’ use of complex financial structures
Mainland China’s banking regulator has moved to rein in the rapidly growing “shadow loans” industry, telling commercial lenders to properly account for lending products that may appear on their balance sheets as lower-risk investments.
The authorities are tightening scrutiny of the lenders as the growing use of complex financial structures has raised concerns that bad lending and credit risks can be concealed.
The new rules forbid commercial banks from entering into repurchase agreements once a loan’s income rights have been transferred, according to a document from the China Banking Regulatory Commission (CBRC).
Banks also are now required to make adequate provisions for transferred loans where the underlying loan assets remain on their balance sheets.
Some joint-stock commercial banks that have a higher reliance on interbank funds and increasing investments in loans and receivables could see their liquidity deteriorate
Individual investors also are forbidden from investing in bad loans through bank-issued wealth management products.
Financial institutions have used the transfer of income rights from credit assets to improve their business, the CBRC said, but added that part of the process was “non-standard and opaque”.