Caixin
Jan 06, 2017 06:28 PM
FINANCE

Private Banks Urged to Tighten Risk Management

(Beijing) — China’s banking regulator on Thursday released a set of nonbinding guidelines for the nation’s emerging private-bank sector that aim to curb potential risks through closer equity transaction and credit controls.

The China Banking Regulatory Commission's (CBRC’s) guidelines call on private lenders to tighten risk management and sustain adequate reserve capital levels. For its part, the commission pledged prudent supervision.

The CBRC has licensed 17 private banks across the country since the industry got off the ground in 2014, although so far only eight — including WeBank, whose founders include Tencent Holdings; and MyBank, operated by Ant Financial Services Group — have opened for business.

The five operating private banks reported 132.9 billion yuan ($19.25 billion) in combined assets and 61.1 billion yuan in outstanding loans at the end of the third quarter of 2016, according to the official Xinhua News Agency.

The guidelines urge private banks to strictly control credit and strengthen oversight of transactions involving major shareholders, senior executives and other parties close to the bank. CBRC also recommended each private bank specify in its charter that it prohibits direct loans to related parties.

The guidelines say private banks should step up shareholder management controls by, for example, discouraging the use of shareholder financial guarantees. Moreover, a private bank should publicly declare any shareholding change that involves at least 5% of the shareholders’ equity.

China cleared the way for private banking three years ago by launching a pilot project designed to bolster the nation's real economy by making it easier for small companies to get loans. China's largest state-owned and commercial-lender banks traditionally favor major, state-owned enterprises over small companies.

Since the pilot began, some private banking sector risks — including some tied to rapid shareholding changes — have been exposed, CBRC Deputy Chairman Cao Yu said at a meeting in September.

Some investors in recent years quickly bought and sold equity stakes in private banks, Cao said. And some sold their shares immediately after the target bank won a CBRC license.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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