December 22, 2017 / 11:06 AM / 8 months ago

China curbs lender-trust cooperation in fight against shadow banking

BEIJING (Reuters) - China’s banking regulator on Friday banned lenders from using trust firms to skirt regulations and cover up risk in Beijing’s latest effort to crack down on shadow banking.

FILE PHOTO - China World Trade Center Tower III (L) and China Zun Tower under construction are pictured behind a Chinese flag in Beijing's central business area, China December 14, 2017. REUTERS/Jason Lee

In a statement on its website, China’s Banking Regulatory Commission (CBRC) said commercial banks must not divert funds into real estate, local government financing vehicles or the stock market through partnership with trust firms, or sign any under-the-table deals with them to skirt rules.

China’s trust industry has been a key part of the country’s massive shadow banking business, which helps channel deposits into risky investments via products often designed to dodge capital or investment regulations.

At the end of June, assets managed by China’s trust industry totalled 23.1 trillion yuan ($3.51 trillion), nearly five times as big as five years ago.

CBRC on Friday pointed out that there were “hidden dangers” lurking in the rapid growth of business between commercial banks and trust firms and urged trust companies not to grow “blindly”.

The regulator also urged banks to fully assess their risk exposure to their investment via trust firms, and set aside adequate provisions for potential losses.

The notice came a month after Beijing published draft guidelines to tighten supervision of the $9 trillion asset management industry in a effort to curb shadow banking.

Reporting by Beijing Monitoring Desk; Editing by Richard Borsuk

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