CBRC warns banks of off-bal­ance-sheet ac­tiv­i­ties and as­sets

Re­vised guide­line to mit­i­gate risks from wealth man­age­ment prod­ucts by rais­ing cap­i­tal re­serve

China Daily (USA) - - BUSINESS - By JIANG XUE­QING jiangx­ue­qing@ chi­nadaily.com.cn

China will tighten risk con­trol of com­mer­cial banks’ off­bal­ance-sheet ac­tiv­i­ties, which have been grow­ing rapidly to a tremen­dous size in re­cent years.

Com­mer­cial banks should in­clude off-bal­ance-sheet ac­tiv­i­ties in their com­pre­hen­sive risk man­age­ment sys­tem, ac­cord­ing to the draft of a re­vised guide­line on risk man­age­ment of com­mer­cial banks’ off-bal­ance-sheet ac­tiv­i­ties is­sued by the China Bank­ing Reg­u­la­tory Com­mis­sion onWed­nes­day.

They will be re­quired to al­lo­cate al­lowances for im­pair­ment losses on as­sets and to re­tain risk-based cap­i­tal for their guar­an­tee busi­ness and commitment busi­ness. This will also ap­ply to in­vest­ment, fi­nanc­ing and in­ter­me­di­ary ser­vices in which they es­sen­tially take credit risks.

The bank­ing reg­u­la­tor will

Zeng Gang,

di­rec­tor of bank­ing re­search at the In­sti­tute of Finance and Bank­ing at CASS also re­quire com­mer­cial banks to set risk lim­its on off­bal­ance-sheet ac­tiv­i­ties.

Zeng Gang, di­rec­tor of bank­ing re­search at the In­sti­tute of Finance and Bank­ing at the Chi­nese Academy of So­cial Sciences, said: “In the past, com­mer­cial banks did not al­lo­cate al­lowances for im­pair­ment losses on as­sets and did not set aside riskbased cap­i­tal for their off-bal­ance-sheet ac­tiv­i­ties, so the risks aris­ing from off-bal­ance­ac­tiv­i­ties are un­der­es­ti­mated.

“The reg­u­la­tor is try­ing to set the stan­dards of risk man­age­ment for off-bal­ancesheet and on-bal­ance-sheet ac­tiv­i­ties at the same level. This is as­so­ci­ated with the rapid de­vel­op­ment of banks’ off-bal­ance-sheet ac­tiv­i­ties,” he said.

As of the end of the third quar­ter, the bal­ance of funds for com­mer­cial banks’ wealth man­age­ment prod­ucts was about 27.1 tril­lion yuan ($3.9 tril­lion). If the banks were li­able for 30 per­cent of the prod­ucts, due to guar­an­tees, and if the ra­tio for the al­lo­ca­tion of al­lowances for im­pair­ment losses was 0.5 per­cent, com­mer­cial banks should al­lo­cate around 40 bil­lion yuan in to­tal, which ac­counts for around 2.5 per­cent of their prof­its in 2015, said Li Shan­shan, a bank­ing an­a­lyst at BOCOM In­ter­na­tional Hold­ingsCoLtd, in a re­search note.

“We ex­pect banks will ac­cel­er­ate the re­struc­tur­ing of their busi­ness. As long as they com­plete the rec­ti­fi­ca­tion on time, there’s no need for them to al­lo­cate al­lowances for im­pair­ment losses on these prod­ucts,” she said.

The reg­u­la­tor is try­ing to put the stan­dards of risk man­age­ment ...”

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