China Said to Plan Crackdown on Banks’ Evasion of Lending Limits
November 26, 2013 Leave a comment
China Said to Plan Crackdown on Banks’ Evasion of Lending Limits
China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, two people with knowledge of the matter said. The rules drafted by the China Banking Regulatory Commission ban borrowers from using resale or repurchase agreements to move assets off their balance sheets, said the people, who asked not to be identified because they aren’t authorized to discuss the rules publicly.Some banks have used such transactions to sidestep loan-to-deposit ratios that limit their lending, according to Sanford C. Bernstein & Co. The agreements entail one bank buying an asset from another and selling it back at a higher price after an agreed period.
The rules would add to measures this year tightening oversight of lending, such as limits on investments by wealth management products and an audit of local government debt, on concerns that bad loans will mount. The deputy head of the Communist Party’s main finance and economic policy body warned last week that one or two small banks may fail next year because of their reliance on short-term interbank borrowing.
The proposed regulations would also limit a bank’s total lending to other financial institutions to 50 percent of its total deposits, and cap loans to non-bank financial companies at 25 percent of its net capital, according to the people. The rules, once approved, would take effect in February, they said.
The CBRC’s press office didn’t immediately respond to requests for comment by e-mail and fax.
To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net
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