Shanghai bank regulators instruct commercial banks to assess risks in off-balance sheet credit business

PUBLISHED : Friday, 03 June, 2016, 12:48am
UPDATED : Friday, 03 June, 2016, 12:48am

Banking regulators in Shanghai have told commercial banks in the financial centre to check their off-balance sheet businesses in a move to curb credit risks.

The local banking regulator recently issued a notice to lenders in its jurisdiction, requiring them to check their off-balance sheet credit business to better control credit risks, Zhou Wenjie, deputy head of the Shanghai Bureau of China Banking Regulatory Commission said.

Analysts said it is part of Beijing’s efforts to control credit risks amid rising concern related to shadow banking.

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 in off-balance sheet businesses.

“Authorities are trying all means to control risks, to deleverage and try to assure liquidity was pumped into the real economy,” said Lu Zhengwei, Industrial Bank’s chief economist.

Market watchers have already warned of mounting risks amid surging shadow banking credit.

Moody’s Investors Service said in late April that the broad range of informal credits that comprise shadow banking, the majority of which do not appear in total social financing, have continued to grow.

The growth of some core shadow banking products, such as trust loans, entrusted loans, and undiscounted bankers’ acceptances, has remained sluggish. However, other non-core activities, or credit issued through wealth management products, have been expanding at a faster pace.

The CBRS issued rules earlier this year to close regulatory loopholes in the segment.

The growing size of the shadow banking system means that during a disorderly contraction, banks could face difficulty replacing shadow banking credit, leaving borrowers who rely on such financing at risk of a credit crunch, Moody’s said.