Mainland regulators are once again turning the spotlight on short-term bill financing to crack down on investors diverting bank loans into capital markets instead of into the real economy, said three sources familiar with the situation.
Since the beginning of the month, branches of the China Banking Regulatory Commission in Shanghai, Beijing and Sichuan had been issuing notices to lenders to ensure that their short-term bill-financing business was being used for genuine short-term working capital needs rather than for speculation, said the sources, who all work in banks.
It was still unclear whether the latest house-cleaning was across the mainland, but one source said it was a nationwide crackdown.
“I understand this is the second nationwide campaign to check bill financing this year, after a similar one was held in April,” said an executive at a commercial bank based in Sichuan, who said the inspection in the southwestern province began about two weeks ago.
The revelation came as domestic media reports surfaced at the weekend about the State Auditing Administration, the country’s top government public finance watchdog, stepping in to sift state-owned banks’ lending records. It was concerned that funds were being diverted from the real economy into other markets, particularly the stock markets. The benchmark Shanghai Composite Index has soared 66.2 per cent so far this year.
However, none of the three sources contacted by the South China Morning Post could confirm the involvement of the administration. “As far as I know, it is a CBRC-initiated campaign,” said an executive at a Beijing-based bank which began internal inspections last week.
Analysts have blamed wayward lending for surging stock markets, with Wei Jianing, a scholar affiliated with the State Council, claiming 1.16 trillion yuan (HK$1.32 trillion) of the 5.8 trillion yuan overall bank credit extended in the first five months found its way into the stock market.
Mainland banks have made 8.15 trillion yuan in new loans in the first eight months, up 160 per cent on the same period last year.
“The impact of the short-term bill financing on the market was illustrated in late August when the A-share market registered an abrupt slump,” said Credit Suisse economist Tao Dong. “The timing coincided with the maturity of a large chunk of the short-term bills issued early on in the first half.”
Lu Zhengwei, an analyst with Industrial Bank, played down the impact of any probe into the market.
“Banks will voluntarily rein in their short-term bill financing anyway in the second half of the year to improve their bottom line because these kinds of loans pay a lower interest margin,” Lu said.
The CBRC has proposed measures to strengthen banks’ capital base, warning against defaults resulting from the credit boom in the first half, but some question whether a crackdown will achieve anything.
“It is very difficult to track how the money is used between borrowing and payback or find out whether it went into the real economy or the asset market because of the mind-boggling transactions of the bill involved,” said an employee of a city commercial bank in Shanghai, who also confirmed a similar campaign in the country’s financial hub.
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Regulators crack whip on misused bank loans
Lenders told of money going into speculation
Martin Zhou in Shanghai
15 September 2009
Mainland regulators are once again turning the spotlight on short-term bill financing to crack down on investors diverting bank loans into capital markets instead of into the real economy, said three sources familiar with the situation.
Since the beginning of the month, branches of the China Banking Regulatory Commission in Shanghai, Beijing and Sichuan had been issuing notices to lenders to ensure that their short-term bill-financing business was being used for genuine short-term working capital needs rather than for speculation, said the sources, who all work in banks.
It was still unclear whether the latest house-cleaning was across the mainland, but one source said it was a nationwide crackdown.
“I understand this is the second nationwide campaign to check bill financing this year, after a similar one was held in April,” said an executive at a commercial bank based in Sichuan, who said the inspection in the southwestern province began about two weeks ago.
The revelation came as domestic media reports surfaced at the weekend about the State Auditing Administration, the country’s top government public finance watchdog, stepping in to sift state-owned banks’ lending records. It was concerned that funds were being diverted from the real economy into other markets, particularly the stock markets. The benchmark Shanghai Composite Index has soared 66.2 per cent so far this year.
However, none of the three sources contacted by the South China Morning Post could confirm the involvement of the administration. “As far as I know, it is a CBRC-initiated campaign,” said an executive at a Beijing-based bank which began internal inspections last week.
Analysts have blamed wayward lending for surging stock markets, with Wei Jianing, a scholar affiliated with the State Council, claiming 1.16 trillion yuan (HK$1.32 trillion) of the 5.8 trillion yuan overall bank credit extended in the first five months found its way into the stock market.
Mainland banks have made 8.15 trillion yuan in new loans in the first eight months, up 160 per cent on the same period last year.
“The impact of the short-term bill financing on the market was illustrated in late August when the A-share market registered an abrupt slump,” said Credit Suisse economist Tao Dong. “The timing coincided with the maturity of a large chunk of the short-term bills issued early on in the first half.”
Lu Zhengwei, an analyst with Industrial Bank, played down the impact of any probe into the market.
“Banks will voluntarily rein in their short-term bill financing anyway in the second half of the year to improve their bottom line because these kinds of loans pay a lower interest margin,” Lu said.
The CBRC has proposed measures to strengthen banks’ capital base, warning against defaults resulting from the credit boom in the first half, but some question whether a crackdown will achieve anything.
“It is very difficult to track how the money is used between borrowing and payback or find out whether it went into the real economy or the asset market because of the mind-boggling transactions of the bill involved,” said an employee of a city commercial bank in Shanghai, who also confirmed a similar campaign in the country’s financial hub.
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