China bank regulator urges banks to control shadow-bank risks

Fri Jan 17, 2014 3:33am EST
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By Hongmei Zhao and Gabriel Wildau

HONG KONG/SHANGHAI (Reuters) - 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 obtained by Reuters, following two severe cash crunches in the last six months.

While China is pushing to reduce 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 practise altogether.

The China Banking Regulatory Commission (CBRC) 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 told Reuters, requesting anonymity because he was not authorized to speak publicly.

"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 the agency's annual work meeting on January 7. The 15-page speech was officially distributed as a circular to banks the following day.

Ratings agency Fitch issued a statement on Friday commenting on the regulator'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.   Continued...

Chairman of China Securities Regulatory Commission Shang Fulin attends the Asian Financial Forum in Hong Kong January 17, 2011. REUTERS/Tyrone Siu