China’s Banking Regulator Flags Continued Scrutiny of Shadow Banking, Increased Use of Regtech

A senior official from the China Banking and Insurance Regulatory Commission (CBIRC) has indicated that the authority will continue to focus its attention on the shadow banking sector.

Wang Zhaoxing (王兆星), CBIRC vice-chair, said that the authority will “continue to effectively monitor, control and regulate shadow banking.”

“Support must continue to be provided to those forms of financing that are of benefit to the real economy,” said Wang in an interview with China Securities Journal.

“Those shadow banking operations that are unhealthy, irregularly increase leverage and lead to funds fleeing the real and turning to the empty must be further controlled and rectified.”

Areas of focus for risk prevention in future will include:

1. Risk in relation to banks themselves – strengthening disposal of outstanding non-performing loans (NPL’s) and strict control of their increase. Ensure that NPL’s remain at a comparatively low level and maintain the stability or increase the quality of assets.
2. Focus on liquidity risk in relation to small and medium-sized commercial banks, who are in position of weakness when competing for funds against large-scale banks. For this reason they must strengthen liquidity management and the matching of assets and liabilities and prevent the onset of liquidity problems.
3. Continue to effectively monitor, control and regulate certain forms of shadow banking.
4. Further strengthen monitoring in the area of real estate loans, and strictly control real estate lending for the purposes of speculative investment. Prevent funds from entering the property market via shadow banking channels – real estate finance remains a key area for risk prevention.

With regard to NPL pressure created by Beijing’s drive for increased lending to the private sector, Wang Zhaoxing said that on the one hand financial support would increase for private enterprise and small and micro-enterprise, while on the other hand risk controls would expand.

“We require that commercial banks strengthen risk control, strengthen the targeting of loans, and provide loans to those private enterprises and small and micro-enterprises that truly need it and are undergoing healthy growth.”

Wang said that CBIRC would strengthen its research into fintech by means of specialist teams, as well as make increasing use of regtech.

“Overall, we need to fully employ fintech to strengthen risk control and drive financial inclusion, as well as use fintech to improve regulatory strength,” he said.

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