CBRC restricts trust product sales

Updated: 2012-01-13 09:08

By Wang Xiaotian (China Daily)

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BEIJING - The off-balance-sheet risk of China's commercial lenders has been surging since last year, prompting regulators to increase restrictions on trust products, said analysts.

"Compared with the beginning of 2011, the risks are much higher and require strengthened regulation," said Guo Tianyong, director of the Banking Research Center at the Central University of Finance and Economics.

He said the sudden jump in bank deposits at year-end could be seen as evidence of widespread off-balance-sheet lending in the previous months.

The China Banking Regulatory Commission (CBRC) has already suspended sales of trust products that invest in commercial paper, Reuters reported on Wednesday, citing unidentified sources.

The CBRC was concerned that the rapid expansion of this segment, worth an estimated 200 billion yuan ($31.65 billion) to 300 billion yuan, might distort China's overall control of credit, Reuters quoted the sources as saying.

The CBRC also regulates domestic trust companies, which usually work with banks to invest deposits in infrastructure projects and financial instruments.

The report said that sales of the popular product that offers investors annualized yields as high as 9 percent, might not be allowed again, and some trust companies had already received phone calls from the CBRC.

Wang Lianshun, deputy secretary-general of the China Trustee Association, said on Thursday that it was still unclear if the CBRC would ban the business.

Wang added that commercial-paper-backed trusts weren't key trust products for banks and trust companies.

A supervisor at a Beijing branch of Bank of China Ltd said that as of Thursday, the lender hadn't been informed of the ban by the CBRC.

"Since it suspended wealth management products that invest in commercial paper at least one year ago, we have already cancelled any sales of commercial-paper-backed trust products," said the supervisor, who added that such business mainly involves small and medium-sized commercial lenders.

Last month, senior CBRC officials said the commercial-paper-backed trust business was "inappropriate" because it could help banks bypass regulatory credit controls.

"The business was invented by lenders themselves and is based on the commercial paper market, which lacks sufficient regulation. The products have become a tool for banks to absorb deposits and make off-balance-sheet loans," said Guo.

Deposit interest rates that are lower than the rate of inflation and a tightened monetary stance since the end of 2010 have made banks eager to secure deposits and make off-balance-sheet loans by providing trust products to clients.