Lenders told to account for loans

09:00, August 12, 2010      

Email | Print | Subscribe | Comments | Forum 

China's banking regulator ordered banks to transfer off-balance-sheet loans onto their books and make provisions for those that may default, three people with knowledge of the situation said.

The assets linked to wealth management products provided by trust companies must be shifted onto banks' balance sheets by the end of 2011, the people said, declining to be identified as the matter isn't public. Lenders should prepare provisions equal to 150 percent of potential losses, they said.

China's move may increase pressure for capital-raising at the country's banks, which Fitch Ratings last month said had more than 2.3 trillion yuan ($339 billion) of off-balance sheet assets. It concerns about the health of the banking industry after a person with knowledge of the matter said regulators last month ordered lenders to conduct stress tests to gauge the impact of a 60 percent drop in home prices.

The regulator's order "will plug the loophole that more and more banks now employ to get around government lending curbs," said Liao Qiang, a Beijing-based analyst at Standard & Poor's. Bringing loans back on to the balance sheet will restrict banks' ability to expand lending while "their capital requirement will increase", Liao said.

Larger banks will be required to maintain the mandated capital adequacy ratio of 11.5 percent after taking the off- balance-sheet loans back onto their books, the people with knowledge of the matter said. Smaller Chinese lenders are required to meet a 10 percent ratio.

A China Banking Regulatory Commission press official, who declined to be identified because of the agency's rules, confirmed the regulator sent a notice on cooperation between banks and trust companies. The regulator will make a public statement soon, she said, without giving a specific time period.

Limited impact

"They want to strengthen their monitoring of the systematic risk related to off-balance sheet management of bad debts," said Wang Qing, Hong Kong-based economist at Morgan Stanley. "In the near term, the impact on banks' earnings will be quite limited."

Globally, regulators are pushing banks to increase capital and improve the quality of their balance sheets in the wake of the credit crisis, which forced dozens of US and European banks to accept state bailouts.

A report by bankruptcy examiner Anton Valukas into the collapse of Lehman Brothers Holdings Inc found the investment bank used off-balance sheet transactions to downplay its leverage in 2007 and 2008.

The Basel Committee on Banking Supervision last month proposed restrictions on how much banks can borrow in order to rein in their risk-taking.

Chinese banks last year extended a record $1.4 trillion of new loans, and regulators are concerned defaults may rise as the economy slows. Chinese property prices rose at the slowest pace in six months in July after the government cracked down on speculation to prevent asset bubbles.

"The regulators are concerned about non-performing loans, but they are also concerned about growth," Lu Ting, a Hong Kong-based economist at Bank of America Corp, said. "It's impossible for them to cut off the loan supply in the next few months."

China aims to cap new loans at 7.5 trillion yuan this year and lenders have advanced 4.6 trillion yuan in the first half. New loans amounted to 532.8 billion yuan last month, the central bank said on Wednesday.

Standard & Poor's said on July 23 banks will need to raise more funds to cope with tighter capital requirements and loan growth. A week earlier, Fitch said first-half Chinese lending was higher than official data suggest as more loans were repackaged into investment products.

Source:Xinhua

(Editor:黄蓓蓓)

  • Do you have anything to say?

双语词典
dictionary

  
Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • Staff members watch a screen showing the blast-off of the Long March-2FT1 carrier rocket loaded with Tiangong-1 unmanned space lab module at Beijing Aerospace Control Center, Sept. 29, 2011. Commander-in-chief of China's manned space program Chang Wanquan announced Thursday night that the launch of Tiangong-1 space lab module was successful. (Xinhua/Wang Shen)
  • Chinese President Hu Jintao watches the launch of Tiangong-1 space lab module at Beijing Aerospace Control Center in Beijing, capital of China, Sept. 29, 2011. Other members of the Standing Committee of the Political Bureau of the Communist Party of China (CPC) Central Committee, including Wu Bangguo, Jia Qinglin, Li Changchun, Xi Jinping, Li Keqiang and Zhou Yongkang, are also present. (Xinhua/Rao Aimin)
  • The graphics shows the launch procedures of the carrier rocket of Tiangong-1 space lab module, Long March-2FT1 on Sept. 29, 2011. (Xinhua/Lu Zhe)
  • Image taken from Beijing Aerospace Control Center shows a Long March-2FT1 carrier rocket loaded with Tiangong-1 unmanned space lab module blasting off from the launch pad at the Jiuquan Satellite Launch Center in northwest China's Gansu Province, Sept. 29, 2011. (Xinhua)
  • On Sept. 28, tourists travel around the Mingshashan Scenic Area in Dunhuang, Gansu province by camel. With the National Day vacation right around the corner, more and more tourists from home and abroad are going to Dunhuang. Riding on a camel, they travel in the desert to enjoy the cities rare form of natural scenery. (Xinhua/Zhang Weixian)
  • Chinese forest armed forces work together with forest firefighters on Sept. 28. (Xinhua/Chai Liren)
Hot Forum Discussion