Interbank borrowing has plunged amongst China’s commercial banks, as financial regulators continues to push for deleveraging of the market.
A recent report by 21st Century Herald points to a massive total decline in interbank borrowings, comprised primarily of interbank deposits, loans from other banks and financial assets sold for repurchase, of 1.54 trillion yuan for a cohort of 25 A-share banking institutions.
CBRC data further indicates that the interbank asset and interbank borrowing balances were 21.1 trillion yuan and 30.3 trillion yuan respectively as of the end of March, for declines 1.4 trillion yuan and 1.9 trillion yuan compared to the start of the year.
Year-on-year growth in interbank assets was -2.2% for the period, yet interbank borrowing increased 12.6%.
Chinese banks have endeavoured to deleverage their balance sheets following the launch of an unprecedented crackdown by the China Banking Regulatory Commission in March, involving a slew of new directives and administrative penalties for misbehaving lenders.
CBRC has set its sights in particular on “regulatory arbitrage,” which involves the disingenuous use of interbank borrowing or financial instruments by banks to dodge reserve or capital requirements or investment restrictions, contributing to the burgeoning growth of China’s shadow banking sector.
Tightening in wealth management products also anticipated
In addition to interbank borrowing, banks have also made use of off-balance sheet wealth management products to engage in regulatory arbitrage and channel funds towards sectors where the government discourages or restricts investment, such as the real estate market or energy intensive and heavy polluting industries.
According to members of the banking sector the inclusion of wealth management products in the central bank’s macro-prudetial assessments as part of the ongoing deleveraging drive will also tighten interbank use of these instruments.
CBRC data indicates that the bank WPM balance saw year-on-year growth of 18.6% at the end of March to hit 29.1 trillion yuan, for a growth slowdown of 34.8 percentage points compared to the same period last year.