China could require banks to disclose details of their off-balance-sheet products, starting with a trial in Shanghai in late March or early April, according to a recent report by
‘the Financial Times’
, which cites an individual who has seen the new draft rules as its source.
Chinese banks have extended sizeable amounts of credit outside of traditional loans in recent years, contributing to a stock of total lending estimated by Credit Suisse to be equivalent to 44% of gross domestic product (GDP). The so-called ‘shadow banking system’ includes short-term wealth management products issued by banks, as well as trust funds.
According to the FT report, under the new rules banks would be required to register their wealth management products with the local regulator, including their size, maturity and interest payments. A further change might be to cap such products at 20% of the bank’s deposit base. Banks are regulated by the China Banking Regulatory Commission (CBRC), which is tasked with ensuring banks are safe but, at the same time, without stifling financial innovation.
This policy is reflected in the CBRC issuing broad principles but following up with more specific rules when activity exceeds a certain scale. However, credit ratings agency (CRA) Fitch recently reported that banks such as the Bank of Beijing and Bank of Communications have been highly active issuers of wealth management products and would already be well in excess of the 20% cap, if it was introduced.
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