China To Ban Another Off-Balance Sheet Bank Channel

November 20, 2013 Leave a comment

China To Ban Another Off-Balance Sheet Bank Channel: Press

Created on Monday, November 18, 2013 – 21:54 EST

BEIJING (MNI) – New rules limiting borrowing and lending practices in the Chinese interbank market may not be as draconian as previously feared but will still close off a channel which currently allows banks to transfer assets off their balance sheets, according to Caijing magazine. The weekly says that, according to newly finalized rules from the China Banking Regulatory Commission (CBRC), banks will no longer be allowed to use tri-party agreements to transfer those assets off, but won’t ban the agreements outright as the interbank market had rumored.Tri-party lending agreements involve two banks and a bridging company — normally a trust company — turning an on-balance sheet loan into an off-balance sheet interbank market asset.

The report said the CBRC is submitting the rules to policy makers for approval and will take effect in February if given the go-ahead.

“The purpose of the new rules is to restore the lending nature of this interbank business and let its risks be truly reflected in bank balance sheets,” an industry source was quoted as saying.

The rules are seen as part of a campaign headed by the People’s Bank of China to wean the Chinese financial system off its addiction to credit creation. Shadow financing has ballooned in recent years as banks have gotten creative in bypassing regulatory curbs on balance sheet activity.

The PBOC said in a monetary policy report earlier this month that the economy is beginning a “long-term process of deleveraging,” a warning which has sent shockwaves through the fixed income market.

Filed under Macro Trends

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