China promises increased steps to win increasing bank risk battle
China has vowed to step up steps to stabilise its distressed banks and small businesses while maintaining a crackdown on shadow banking and property speculation, in a tricky balancing act that risks exacerbating its conventional lenders ‘ accumulation of bad debt.
As regards rising over the condition of China’s $45 trillion financial systems, the nation’s central bank and its top financial regulator used the first weekend of the year to unleash new information on how to tackle threats in the middle of the slowest economic expansion in three decades.
The People’s Bank of China, which has been hesitant to prime the stimulus too much, said Sunday that it would “resolutely win the battle” against increasing financial risks, underlining its position as a last-resort lender and urging local governments to step up front-line support.
It followed an announcement by the China Banking and Insurance Regulatory Commission (CBIRC) announcing a series of measures including the formation of bad loans, the development of a resolution fund, as well as the promotion of fusions, capital injections and the consolidation of high-risk entities.
“Risk control has always been on the authority’s agenda but compared to previous general guidelines, regulators have used strong wording to lay out concrete, drastic measures,” said Zhao Jian, head of the Beijing-based Atlantis Financial Research Institute. “This is a sign that policymakers are stepping up efforts to contain financial risks this year.”
With the economy still weighed down by a trade dispute with the United States, the Chinese authorities are adopting a more organised approach to addressing the problems faced by more than 3,000 provincial and rural borrowers, many of whom are grappling with a pile of sealed loans, eroding liquidity and weak internal controls.
Since May when regulators seized control of a lender in Inner Mongolia — the first such action in two decades — and placed losses on some borrowers, confidence in these organisations has waned. Since then, authorities have orchestrated two other banks’ bailouts and intervened to quell at least two bank runs by jittery depositors.
The regulator also said it would continue to press on with its two-year drive against shadowing banking by growing non-compliant investments in non-standard properties by financial institutions, which are mostly loans disguised as investments. Insurers are expected to clean up acquisitions that can pass across multiple products, including leveraged trades between related parties.
The banking regulator said that by preventing speculative housing deals and blocking illicit flows of funds into properties, it would improve risk management in areas like real estate. Meanwhile, the central bank said it would create a long-term regulatory framework to track the sector’s funding more closely.
China’s financial market enters a crucial year as it expands to full ownership of foreign property. Also, the regulator, which affirmed its determination to monitor the expansion, depends on the sharpened rivalry to instil more stability in its domestic companies. Starting this month with its derivatives and insurance markets, the nation is introducing the most sweeping changes in decades to enable JPMorgan Chase & Co., Goldman Sachs Group Inc., and BlackRock Inc. to grow their presence in China.
The CBIRC has promoted the conversion of household deposits into more long-term capital investments, as well as higher corporate annuity and endowment insurance business growth. The regulator requires asset services, banking, and trust companies to be directly involved in long-term investment funding and development.