China curbs banks’ unlicensed operations
beijing — China has announced plans to regulate financial institutions that have unlicensed operations outside their home base, indicating policy makers are not relaxing their efforts to fend off financial risks as the world’s secondbiggest economy faces headwinds.
Lenders, including rural cooperatives and policy banks, will need to apply for a licence to operate units outside their home base or will have to wind down the businesses, the China Banking and Insurance Regulatory Commission said in a statement. The new rules also prohibit banks from setting up non-operational units in regions where they have no branches.
The move shows that the central leadership still aims to curb financial risks, even though they indicated a more accommodative monetary environment in 2019 to shore up the slowing economy. The policy will have a greater impact on the operation and business expansion of smaller regional banks than big national lenders, because the former’s home base is often narrower.
“This is in line with the campaign of stricter financial oversight. The city banks would be more exposed,” said Gai Xinzhe, senior analyst at Sino-Ocean Capital in Beijing. “They would find it very difficult to circumvent regulation via their old practice such as setting up shadow-loan instruments in Beijing and Shanghai.”
Regional banks in China’s rustbelt provinces are driving the rapid expansion of shadow banking in the country, UBS Group AG found in a study last year. Smaller lenders have been using shadow-loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a wider spectrum of Chinese corporate risk in the event of a default, according to the report.
“Medium-sized and small financial institutions should stick to their positioning, plowing through their local market and providing quality financial services to the agricultural sector and small and microsided businesses,” the commission said in the statement.