A crackdown on the banking sector of unprecedented intensity continues to hamper liquidity and undermine the performance of Chinese stocks, compelling CBRC to reassure markets.
The China Banking Regulatory Commission launched its campaign against malfeasance amongst lenders shortly after newly appointed chairman Guo Shuqing took office February.
During the period from end of March to the start of April, CBRC released slew of new directives aimed at disciplining the Chinese banking sector, as well as a rash of penalties for regulatory infractions by lenders.
Chinese stocks have posted a faltering performance ever since, with the SSE Index sliding from 3286.62 on 7 April to 3083.51 on 12 May, for a decline of 6% over roughly a month-long period.
At the same time nearly 20% of ETF’s have seen their net values fall by over 1%.
According to researchers from Guotai Junan Securities, the ongoing crackdown has compelled banks to shrink their balance sheets, increasing liquidity pressure.
Speaking to The Beijing News, one credit manager from a major state-owned lender said that pressure from CBRC has left bankers scrambling to ensure they’re in compliance with the new directives.
“Since the end of March, there is almost no time that we aren’t working overtime, usually until after 10 o’clock.
“We’re mainly engaging in self-inspections with reference to implementation plans issued by the head office, based on the string of regulatory documents issued by CBRC.”
“This involves the development of all bank operations.”
Members of the Chinese banking sector report that the self-inspections mandated by CBRC have already led to the retrenchment of mid-level managers.
CBRC seeks to calm rattled nerves
China’s banking regulatory has since sought to stem the adverse impact on sentiment, taking the trouble to send pointed signals to stock and bond markets on the matter.
Xiao Yuanqi, the head of CBRC’s Prudential Regulation Bureau, said at a recent press conference that the recent string of directives do not actually contain any new regulations, and that the market response has been misplaced.
“I feel that perhaps the market has certain misinterpretations or misunderstandings of the relevant policies, leading to nervousness.”
“The guiding thought and aim of regulators is to open the front door, not the side door…not to restrict business.”
Xiao’s reassurances that the regulatory documents issued in March and April do not contain any new requirements may do little to calm the banking sector, giving the signal of renewed scrutiny they send to markets.
“Although this round of CBRC self-inspection content overlaps with standard regulatory inspections, the banking sector is placing more emphasis on current self-inspections than at any time previously,” said a corporate banking manager of the Beijing branch of a joint-stock commercial bank to The Beijing News.
“In actuality, the regulatory storm drummed up by CBRC was first led by the Shanghai brach at the end of last year and the start of this year.
“After the Shanghai trial, the experience was expanded to the whole country, and after the clustered issuance of directives at the end of March and the start of April, the entire banking sector has been busy.”
Heightened scrutiny from regulators set to continue
While attempting to reassure markets, Xiao Yuanqi has also indicated that CBRC’s heightened scrutiny of the banking sector is set continue.
“We are currently at the phase of clarifying the base figures,” said Xiao, who pointed to the need to get to the bottom of the problems in relation to business conditions as a whole in the banking sector, as well as risk points, risk levels, and support of the real economy.
According to Xiao banks would be granted a “buffer period” of four to six months to conduct self-inspections and engage in standardisation and reform work.
As the self-inspection buffer period draws to a close, CBRC is also expected to send its own staff to conduct on-site examinations.
Analysts report that the Beijing branch of CBRC has already sent personnel to certain large and medium-sized banks to conduct inspections for periods of around a month.