* China tightens regulation on a section of shadow banks
* Tougher rules aimed at increasing financing for real
(Adds details, analyst comment)
BEIJING May 16 China is tightening its grip on
interbank lending with more expansive rules that include capping
the size and maturity of loans, a move to defuse risks in shadow
banks and better support the real economy.
The new regulations would bring the country's sometimes
recalcitrant interbank market into official oversight by
"blocking the back route" and "opening the front door", five
financial regulators said in a joint statement.
Tougher rules would help to direct more cash into the real
economy and lower funding costs for firms, the central bank and
the regulators for banks, securities, insurance and currency
Interbank loans are one part of China's ballooning shadow
bank market -- a growing headache for regulators due to its
murky practices and periodically lax lending standards.
"In recent years, the interbank business of commercial banks
has grown quickly, and some banks are conducting their
businesses in ways that do not conform to standards," the bank
regulator said in a separate statement.
"Risk management is not done properly and does not fit with
the country's adjustment of its macroeconomic policies," the
bank regulator said, adding that all banks must create a
separate division to run their interbank businesses by the end
As growth in the world's second-largest economy slows,
financial risks in China are rising because more companies and
individuals are struggling to repay their loans.
Ratings agency Standard & Poor's said last month that about
a third of China's shadow banking sector, which it estimated has
about $30 trillion worth of assets at the end of 2013 -- is
risky and may pose some problems.
Just last week, a deputy central bank governor took aim at
China's wealth management sector, another part of the shadow
banking market, by saying that the industry was unduly raising
financing costs for firms with its mercenary behaviour.
With immediate effect, banks can no longer make interbank
loans that extend over three years, and loans are not to be
rolled over when they mature.
The proportion of financing that comes from the interbank
business must also not exceed a third of any bank's total
liabilities, the regulators said in an 18-point statement.
For banks that do not report their interbank loans on their
balance sheets, the new rules would compel them to do so. Some
analysts also say that this means banks now have to include
interbank loans and deposits in their calculations of the
As for branches of financial institutions that are involved
in the interbank business, these firms must create a
company-wide system that tracks the borrowing record of any
firm, including any sum borrowed via the interbank business.
And final approval for any deal in the interbank business
must be signed off by the headquarters of all financial
"Under the new rules, loans disguised by some banks as
interbank business to avoid supervision will now be listed as
on-balance-sheet items," said Zeng Gang, a senior bank
researcher at the Chinese Academy of Social Sciences, a
government think tank.
"In the long run, this is a good thing," he said. "Banks are
getting too messy, and a lot of risks are being hidden. It is
good for banks to build a risk management system."
(Reporting by Shao Xiaoyi and Koh Gui Qing; Editing by