Caixin
Jun 19, 2019 02:55 AM
FINANCE

China Asks Big State-Owned Banks to Back Top Brokerages

The Baoshang takeover has cast a chill over the interbank market and driven up borrowing costs. Photo: Bloomberg
The Baoshang takeover has cast a chill over the interbank market and driven up borrowing costs. Photo: Bloomberg

Chinese regulators called on the largest state-owned banks to provide financing to the country’s leading brokerages as part of efforts to calm market jitters caused by the government takeover of a private bank last month.

A meeting Tuesday involving the central bank, securities regulators and top banks and brokerages continued a series of steps to limit the fallout of last month’s seizure of Baoshang Bank Co. The People’s Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) in a meeting Sunday had promised bank financing support to nine leading brokerages and fund managers in return for their backing of smaller brokerages.

For the Tuesday conference, the PBOC and CSRC summoned six big state-owned banks and some leading brokerage managers to discuss ways to address liquidity risks facing the non-banking financial sector.

Although the PBOC has called the Baoshang situation an isolated case, the takeover has cast a chill over the interbank market and driven up borrowing costs for smaller banks and non-bank institutions. On Friday, the central bank announced a plan to hand out 300 billion yuan ($43.4 billion) in rediscount and standing lending facility (SLF) quotas to support lending by smaller banks.

Participants in the meeting Tuesday were Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, China Development Bank and Postal Savings Bank of China. The top brokerages there included Citic Securities Co., China International Capital Corp., Huatai Securities Co., Guotai Junan Securities Co., China Merchants Securities Co., China Galaxy Securities Co. and CSC Financial Co.

Regulators urged the six banks to step up financing support to the top brokerages through interbank lending and pledged repos. The big banks and brokerages were also encouraged to act as counterparties in the interbank market.

Since the Baoshang takeover, it has become increasingly hard for brokerages to get loans using corporate bonds as collateral because the takeover set off jitters in the interbank market. A bond trader at a brokerage told Caixin that banks now won’t take even AA+ bonds of big state-owned enterprises as collateral.

The two meetings are intended to enable big brokerages to act like small and medium-sized banks to bring liquidity from banks to non-bank institutions, market participants said. Big brokerages tend to have stronger risk identification ability than many small and medium-sized banks, so they can avoid the approach of cutting off all borrowers as some smaller banks do, a senior bond market participant told Caixin.

“With various sectors cooperating and taking up their share, we are confident to maintain a stable operation of the financial market,” Pan Gongsheng, deputy governor of the PBOC, said at Tuesday’s meeting.

Contact editor Han Wei (weihan@caixin.com)

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