China’s bank regulator moves to rein in small lenders as Beijing fears financial risks
- After a number of easing measures during the pandemic, economic stability remains a concern in China as cheap funds flow into stocks and property
- Some lenders have been told to stop issuing structured deposits, but curbing such products – popular at small banks – could trigger liquidity stress
Many of China’s small and medium-sized companies have been hit by the international health crisis. And as they struggle to repay debts, pressure is mounting on the country’s small lenders.
“[Because of the] coronavirus epidemic and other factors, pressure is increasing on non-performing assets, due to the corporate governance of some small and medium-sized financial institutions and the return of disorder in markets. The potential risks and challenges remain relatively large,” said a press statement on Tuesday by the China Banking Association, an organisation of Chinese banks supervised by the People’s Bank of China (PBOC).
If there’s a larger scale of bankruptcies or restructuring in small banks, this would create a large shock to the system
The latest moves by the China Banking and Insurance Regulatory Commission to rein in small banks include curbing the growth of structured products – pre-packaged financial instruments that combine traditional bank deposits with higher-return derivatives linked to currencies, commodities or stocks, to lure in more funds.
