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China sets capital requirements for trust firms
September 9, 2010 / 3:07 PM / 7 years ago

China sets capital requirements for trust firms

BEIJING, Sept 9 (Reuters) - 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 CBRC said.

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 Lawson)

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