Banks need to rely less on short-term loans
Print Edition
China’s banking regulator is pressuring banks to curb reliance on short-term borrowing and control risks from off-balance-sheet lending, according to a document, following two severe cash crunches in the last six months.
While China wants to cut systemic risks posed by the rise of shadow banking, analysts say its focus is on curbing the riskiest off-balance-sheet lending practices rather than ending the practice altogether.
The China Banking Regulatory Commission has set up a leadership group on banking industry reform headed by its Chairman Shang Fulin, according to a source close to the regulator.
“The CBRC is requiring banks ... to push forward reform in the two areas of wealth management and interbank business,” the source said. “The commission will come up with a reform plan in the first quarter, and preliminary results on these two focal points of reform should be evident by the end of June.”
The document is the text of a speech delivered by CBRC Vice Chairman Zhou Mubing at its annual work meeting on January 7. The speech has been distributed as a circular to banks.
Ratings agency Fitch issued a statement yesterday commenting on the CBRC’s approach to what many analysts see as potential time bomb ticking under the mountain of domestic debt.
“Recent developments highlight China’s efforts at reforming and regulating — but not rolling back — the growth of shadow banking,” Fitch said.
Zhou warned banks against relying on interbank borrowing as a funding source for corporate loans. “The key focus of interbank business reform is to restore its essential character as a temporary, short-term tool for banks for cash management, and to control the scale of interbank business and its share (of a bank’s overall balance sheet),” Zhou said.
The interest rate that banks charge each other for short-term loans spiked to double-digit levels in June and again last month, raising concerns about excessive reliance on short-term funding, especially among smaller banks, which have limited access to customer deposits.
The CBRC also called on banks to separate their deposit business from wealth management products, which they market to customers as a higher-yielding substitute for deposits.
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