July 8, 2014 / 12:41 PM / in 3 years

China c.bank reinforces interbank lending limits -sources

BEIJING, July 8 (Reuters) - China’s central bank has reinforced the country’s controls on interbank lending by instructing the headquarters of banks to keep close tabs on this area, according to two sources with knowledge of the matter.

Interbank loans, which are a part of China’s fast-growing and sometimes wayward shadow banking market, have come under increased scrutiny on fears that some may sour as the maturing Chinese economy cools.

Under the latest rules, a bank that wants to open an account at another bank to conduct interbank lending or borrowing must get the green light from its headquarters, the sources cited the central bank as saying in a notice.

The sources declined to be named as they are not authorised to speak to the media. The notice, which was seen by Reuters, was published on June 25.

All interbank accounts must be divided into settlement or investment and financing accounts, depending on their use, the notice said.

Only the headquarters of banks or their bigger provincial branch offices can open interbank accounts for investment or financing. If any smaller branch outlet needs to start such an account, it must have its headquarter’s approval.

The central bank did not comment when reached for this article.

Ratings agency Standard & Poor’s estimated in April that about a third of China’s shadow banking sector, which it said has about $30 trillion of assets at the end of 2013, is risky and may pose some problems.

The last time China tried to rein in the interbank market was in May, when it announced more expansive rules for the sector such as capping the size and maturity of loans. The hope is that this would defuse the risks and better align the industry with the needs of the real economy. (Reporting by China Economics; Writing by Koh Gui Qing; Editing by Jeremy Laurence)

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