Chinese Banks to See Rising Off-Balance Sheet Risks
Wednesday, July 21, 2010
Chinese banks may suffer a rapid exposure to off-balance sheet credit risks in the short term, as the China Banking Regulatory Commission (CBRC) recently ordered a suspension of banking-trust cooperation on the development of credit-backed wealth management products. China's bank-trust wealth management products grew 300 billion yuan (US$44.3 billion) to 1.3 trillion yuan by the end of the first quarter of this year. By the end of April, the issue of such products reached 1.88 trillion yuan.
According to a Shanghai Securities News report, up to now, the value of the bank-trust wealth management products has accounted for 30 to 40 per cent of the new loans this year, and the proportion is expected to go up. Market insiders estimate that the issue of such products in Q2 may reach 1.4 trillion yuan, close to the lending in the same period.
The sharp increase of the bank-trust products has weakened the regulator's supervision over banks' credit risks and its intention to control the scale of lending, said analysts. The suspension prevented banks from removing their credit assets off their balance sheets, and this reduced banks' capability to further expand their lending.
Qiu Chengzhi, an analyst with Guosen Securities, said that the suspension of the bank-trust products could sharply reduce the scale of lending of local governments financing platforms and the real-estate sector in the short term. Some small and medium-sized banks with high loan-to-deposit ratios would suffer difficulties in attracting deposits due to the suspension, which would tighten their liquidity further. Due to the suspension, the scale of lending will be further reduced. In this case, the loan yield will continue to go up. However, the suspension would also reduce banks' revenue from intermediary business, said analysts. In the long run, the suspension of bank-trust wealth management products could help banks improve their asset quality, said Qiu.
According to the Shanghai Securities News report, the CBRC will bring the regulation of credit-backed bank-trust wealth management products into the balance sheet supervision, after it completes its check of banks' products of this type.
The report said that the banking regulator will give green light to the issue of non-credit-backed bank-trust wealth management products, after the CBRC's check-up of credit-backed bank-trust products.
Labels: China, Off Balance Sheet Risks, Risk
posted @ 3:51 PM,
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