CBIRC Shifts Focus from Shadow Banking to Online Finance, Real Estate, NPL’s and Hidden Debt

China’s banking and insurance regulator is shifting its focus from interbank lending, wealth management products and off-balance sheet activity towards online finance and hidden local government debt.

A teleconference convened by the China Banking and Insurance Regulatory Commission (CBIRC) on 29 August discussed the opening phase of work for the “Three Year Action Attack Plan for the Prevention and Dissolution of Financial Risk” (防范化解金融风险攻坚战三年行动方案) that was approved by the inaugural meeting of the Financial Development and Stability Committee (FDSC) on 2 July.

According to the CBIRC meeting the four key focal areas for risk prevention will be online finance, the real estate bubble, non-performing assets and local government debt.

CBIRC said it would “prevent, control and effectively dispose of internet finance risk…further improve differentiated real estate credit policies and resolutely contain the real estate bubble…and expand the vigour of work for the accurate categorisation and disposal of non-performing loans.

The banking regulator will also “earnestly implement the spirit of policies for the prevention and resolution of local government hidden debt risk and strengthening of accountability.”

A Chinese banking sector analyst said to 21st Century Business Herald that the the statement from CBIRC points to a “shift in focus for resolution of financial risk following the recent P2P scandals and the attention given by senior policymakers to hidden government debt.”

“While prior areas of focus for CBIRC have been interbank lending, wealth management products and off-balance sheet activity, In future greater attention be given to online finance risk and local debt risk.”

In order to help rein in China’s property sector, CBIRC said that it will “further improve differentiated real estate credit policies,” as well as put a strict ban on “down payment loans” and illicit conduct such as the use of consumer loan funds to invest in the real estate market.

With regard to NPL’s, CBIRC said that it would “spur banking and insurance institutions to fully and truthfully reflect their asset quality.”

Beijing has already launched new recognition standards that require loans overdue for more than 90 days be directly categorised as non-performing, as opposed to “overdue but not impaired.”

In the first half of 2018 the Chinese banking sector jointly disposed of around 800 billion yuan in NPL’s, for an increase of 166.5 billion yuan compared to the same period last year.

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