China’s banking regulator hopes to curb the financial risk created by the unlicensed operations of the country’s banks beyond their own home jurisdictions.
The China Banking and Insurance Regulatory Commission (CBIRC) announced the release of the “Guidance Opinions Concerning Standardising the Non-home Unlicensed Institutions of Banking Sector Financial Institutions” (关于规范银行业金融机构异地非持牌机构的指导意见) on 29 December.
According to an official statement the goals of the guidance opinions are to “standardise the unlicensed business activities of banking sector financial institutions outside their home bases; maintain the financial market order and prevent financial risk.”
The Guidance Opinions require that Chinese banks apply for licenses to engage in business outside their home base or else shut them down, while also banning them from establishing non-operating units in those parts of the country where they do not already have branches.
“In recent years some banking sector institutions have engaged in unlicensed operations outside their home bases, bringing considerable difficulty and challenges to the internal management of banks and financial regulation,” said a CBIRC official.
“At present, the problem of banks engaging in disorderly business outside their home bases has already seen initial containment, but during the process of rectification there have been problems such as disparities in the methods and regulatory standards of different regions.
“This urgently requires the formulation of standardised requirements and regulatory benchmarks.”
CBIRC has stipulated a transition period of one-year before full application of the new regulations.
Domestic analysts point out that the new regulations will have a heavier impact on the businesses of regional banks with a smaller base that the established state-owned giants.
“This is in line with the campaign of stricter financial oversight,” said Gai Xinzhe, senior analyst at Sino-Ocean Capital to Bloomberg. “The city banks would be more exposed…they would find it very difficult to circumvent regulation via their old practice such as setting up shadow loan instruments in Beijing and Shanghai.