BEIJING, June 7 |
BEIJING, June 7 (Reuters) - China's securities watchdog has ordered the cities of Beijing, Shanghai and Shenzhen to increase regulation of sales of corporate bills by banks to brokerages to restrain off-balance sheet lending, three sources told Reuters on Thursday.
The move is the latest attempt to crack down on buoyant off-balance sheet lending by banks that escapes the purview of the bank regulator, and skirts the government's stringent credit controls.
Shenzhen, a thriving commercial city in southern China, has suspended all sales of bills by banks to brokerages, three sources with direct knowledge of the matter said, and Beijing and Shanghai will follow suit as early as this week.
"Products that have been sold would be left alone as their maturities are not long anyway. But banks are barred from issuing new ones," one of the sources said.
Chinese banks have used bill sales as a key way to skirt regulator's supervision, and they form an important part of China's shadow banking system, which analysts estimate to be worth up to 10 trillion yuan ($1.6 trillion).
These bills originate from commercial papers that firms issue to banks in exchange for loans. Banks then repackage and securitise the commercial paper into bills and sell them to brokerages or trust firms.
This allows banks to move some loans off their balance sheets, and even covertly exceed their lending limits.
Lending controls are at the center of China's monetary policy and the government tells banks how much they can lend by giving them annual loan targets.
Prohibiting banks from selling bills to brokerages marks a swift reversal in a new policy that was only implemented in May, when China's Securities Regulatory Commission gave the green light for brokerages to buy bills from banks.
But an explosion in the business over the past month likely led the securities regulator to worry about possible risks, prompting a rethink in the policy.
($1 = 6.3635 Chinese yuan) (Reporting by Zhao Hongmei and Aileen Wang; Editing by Koh Gui Qing and Mark Potter)
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