Shadow banking to be included in assessing risk
People's Bank of China to include off-balance sheet wealth management business in its Macro Prudential Assessment risk tool
China’s central bank will tighten supervision of shadow banking businesses by including off-balance sheet wealth management products (WMPs) into its risk-assessment framework next year, sources with direct knowledge of the matter told Reuters.
The People’s Bank of China (PBOC) will include WMPs in macro-prudential assessments starting in the first quarter of 2017, the sources said, potentially requiring banks to put aside more capital.
The PBOC also urged financial institutions to strengthen liquidity management and keep next year’s lending growth at a “rational and appropriate” pace, the sources said.
The PBOC on Monday confirmed the news, according to the official Xinhua news agency.
Over the weekend, China’s top leaders vowed at a key economic planning meeting to prevent asset bubbles in 2017 and to place greater importance on managing financial risk. The leaders also said it would keep monetary policy “prudent and neutral” in 2017.
China’s US$3.5 trillion wealth management industry has been a source of risk, as off-balance sheet WMPs channel deposits into risky investments with little regulatory oversight, offsetting some of Beijing’s efforts to reduce corporate leverage.
Starting in the first quarter of next year, off-balance sheet wealth management products will be included in the macro-prudential assessment (MPA) framework, the sources said.
The MPA currently includes checks on loans, bond and equity investments and deposits at non-financial institutions.
The central bank also urged “stable and orderly” growth in WMP business towards the year-end, the sources said.
It was reported in July that China’s banking regulator was drafting new rules to tighten control over the sprawling WMP industry, as Beijing grows increasingly concerned about the potential risks of high leverage and worsening credit quality associated with such businesses.