BEIJING, Sept 9 China on Thursday imposed
capital requirements for the first time on trust firms, lightly
regulated hybrid institutions whose role in securitising bank
loans has fanned concern about financial stability.
The move is the latest attempt to reinforce the supervision
of fast-growing trusts, which combine the characteristics of
asset management companies, banks and private equity firms.
A statement posted by the China Banking Regulatory
Commission (CBRC) on its website, www.cbrc.gov.cn, said trust
firms must hold net capital of at least 200 million yuan or 40
percent of net assets, whichever is greater.
Trusts will have 12 months to meet the new requirement.
The closer oversight is aimed at curbing the blind expansion
of trust businesses, which have grown sixfold in the past three
years without an accompanying improvement in risk controls, the
Setting capital requirements will make it even less
profitable for trusts to engage in the business of repackaging
loans on behalf of banks -- which take them off their balance
sheet in the process -- and selling them as wealth management
products to the banks' clients.
Trust firms reaped just 10 percent or so of their profits
from such products, but the business volume accounted for
two-thirds of their total assets, according to CBRC statistics.
Trusts managed assets of 2.9 trillion yuan at the end of
June, of which 2 trillion yuan was in the form of investment
products jointly issued with banks, the figures show.
Banks had linked up with trusts to skirt around government
restrictions on lending, triggering explosive growth in
repackaged wealth investment products in the first half.
Beijing halted such business in July and ordered banks to
bring loans extended to trust firms back on to their balance
sheets within two years.
(Reporting by Aileen Wang and Alan Wheatley; Editing by Hugh