Balance Sheets of Beijing Lenders Contract Following 30% Drop in Interbank Assets

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The Chinese government’s crackdown on lenders in tandem with its ongoing deleveraging campaign have led to a sharp decline in interbank assets within the Beijing banking sector.

According to the Beijing branch of the China Banking Regulatory Commission the Beijing banking sector’s total assets at the end of June were 21.2 trillion yuan, for decline of 1.8% compared to the start of the year, while total liabilities were 20.1 trillion yuan, for a decline of 1.9%.

Branch head Jiang Ping said that contraction in Beijing bank balance sheets was primarily the result of sharp drops in both interbank assets and debt, which posted drops of 29.6% and 13.5% respectively compared to the start of the year, following efforts by regulators to stymie the “empty circulation” of funds within the financial system.

These declines served to offset a rise in the loan balance of Beijing banks, which has increased 7.5% since the start of the year to reach 8.29 trillion yuan, as off-balance sheet business has made its way back onto balance sheet at the prompting of regulators.

The Beijing banking sector is considered to be key bellwether of the Chinese banking in general, with the capital city accounting for 9% of the country’s total banking sector balance sheet of more than 200 trillion yuan.

Figures provided by Caixin indicate that funds raised by Beijing banks via wealth management service in the first half saw a near 400 billion yuan decline compared to the same period last year.

Funds raised using wealth management products during the period – a key staple of China’s shadow banking sector, dropped 66.58 billion yuan compared to the same period last year, for a 33.8% decline.

Sources close to regulators say that a key reason for the sharp drop in wealth management funds has been a continuous rise in the cost of WMP issuance, prompting some financial institutions to slash operations.

Heightened scrutiny of WMP’s has also been a major factor, with banks now required off-balance sheet business in their macro-prudential assessments.

A third factor has been tighter liquidity resulting from the central government’s deleveraging campaign, which served to restrain investors.

The drop in interbank assets and modest contraction in balance sheets has done nothing to dent the profitability of Beijing lenders, however, with Jiang Ping pointing out that first half profits increased nearly 14%year-on-year to hit 130 billion yuan, for an acceleration in growth of 0.9 percentage points.

According to CBRC’s data Beijing banks have also seen a modest contraction in their non-performing loan levels to 30 billion yuan, for a year-on-year decline of 0.22%, and an NPL ratio of 0.37%.

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