China Financial Daily :Cracking down Shadow Credit,CSRC to Ban All Channel Businesses
Cracking down Shadow Credit: CSRC to Ban All Channel Businesses (Caixin, May 20)
CSRC for the first time said to prohibit all asset management channel businesses in brokers, fund house and fund subsidiaries, according to CSRC spokesman Zhang Xiaojun in a media conference on May 19. The channel businesses are referring to non-bank financial institutions acting as the SPVs to package the shadow banking credit for banks. According to CSRC, brokers and funds should serve as asset managers and should not skip management responsibilities in conducting channel businesses. Total one-on-one asset management products under CSRC regulation was Rmb27trn in 2016, and most of it was channel business including Rmb14.7trn for brokers, Rmb4.2trn for fund house and Rmb8.2trn for fund subsidiaries. Channel business in fund subsidiaries saw declining growth in 2016 (AUM down Rmb646bn in 4Q16 qoq) after regulator imposed tighter capital rules.
(DB view) This is another evidence of joint regulatory efforts to crack shadow credits and continue financial deleveraging. As we highlighted in our report Slower pace but unchanged direction, despite recent softer tones from regulators, it does not mean the financial deleveraging will stop and we believe it is just half way. Facing tighter shadow banking regulations, smaller banks may see higher capital pressure given their aggressive shadow banking credit growth (77% CAGR in the past three years). In our stress test, listed banks would have to raise CET-1 capital of Rmb343bn, or 18% of their market cap. Smaller banks would probably have to slow asset growth, shift to lower-return assets and cut dividends in the near term. Please see our report - Mounting capital pressure.
Some China Banks’ Local Branches in a Tier-3 City Saw 10%+ NPL ratios by April End (EEO, May 22)
Media reported that NPL ratios at some Chinese banks’ local branches in Ningbo Cixi City reached over 10% by April end, much higher than sector average of 1.74% in China, local media reported. Specifically, NPL ratio at CCB Cixi Branch was reported as high as 18% by April end with NPL balance of nearly Rmb2bn. Meanwhile, BOC, ICBC, SPDB, PAB, INDB, CMB and Donghai Bank’s Cixi branches are also troubled with NPL issue, and most of those banks’ NPL ratios stand over 10% by April End. Ningbo Cixi City, located in Zhejiang Province, Eastern China, is a place where thousands of private small-to-medium enterprises gathered and owns booming private economy in pastyears. China banks aggressively compete for credit business in Cixi City, and the number of banks’ primary sub-branches doubled in past 10 years to reach at 41 in Cixi city. As of April, total NPLs and SMLs balances in Cixi City were amounted to Rmb10.6bn and Rmb9.5bn, accounting for 5.7% and 5.1% of total loans, compared with 1.74% and 3.77% of China average banking sector level by March end, respectively, local media reported.
Sealand Sec. was Suspended to Conduct Some Businesses (Caixin, May 19)
China Securities Regulatory Commission will suspend filings for Sealand Securities’ new asset management products, halt reviewing its bond underwriting and forbid it to open new brokerage accounts for a year as an additional regulatory penalty for its forged seal issue occurred December 2016, citing CSRC spokesman Zhang Xiaojun as saying at a regular briefing.
PBOC Injects Rmb30bn of Liquidity into the Market via OMO on Monday (PBOC, May 22)
PBOC sold Rmb10bn of 7-D reverse repos at flat yield of 2.45% and Rmb30bn of 14-D reverse repos at 2.60% yield on Monday. With Rmb10bn reverse repos matured, PBOC injects net liquidity of Rmb30bn into the market via open market operation on Monday, according to PBOC data.