* Regulator eyeing risks in wealth management products -
* Smaller city banks more reliant on WMPs for funding
* Checks are separate from c.bank quarterly assessment
SHANGHAI, March 30 China's banking regulator is
inspecting off-balance sheet risks at smaller regional banks,
two sources told Reuters on Thursday, as China steps up checks
on financial institutions in an effort to control risky lending.
The China Banking Regulatory Commission (CBRC) is checking
the size and potential risks from off-balance sheet activities
including non-guaranteed wealth management products (WMPs),
entrusted loans and entrusted investments, the sources said.
The CBRC's inspections of what are called "city commercial
banks" have gotten under way at the same time as all banks
prepare for quarterly Macro Prudential Assessments (MPA) by the
People's Bank of China.
The central bank's MPA is a formal evaluation that assigns a
score to each bank based on parameters believed to include asset
quality, capital adequacy, the proportion of liquid assets and
the stability of funding.
For the first time, the MPA will include off-balance sheet
WMPs in the first quarter to give authorities a better sense of
potential risks to the financial system.
In its inspections, the CBRC will take a close look at
non-guaranteed WMPs that invest in non-traditional debt
investments including those for local government financing
vehicles, property and infrastructure projects, the sources
WMPs, often linked to shadow banking, have seen explosive
growth in recent years even as authorities try to contain risks
stemming from a rapid build-up in debt.
The CBRC, when contacted by Reuters, did not immediately
China's city commercial banks generally have a weaker
deposit base than bigger ones and often generate funds by
selling WMPs at higher interest rates to retail investors.
China's banking regulator does regular inspections of banks;
this round will focus on non-guaranteed WMPs that offer fixed
returns and will also include checks on how banks make
investment decision and isolate risks for off-balance sheet
Banks' wealth management product portfolio totaled 26.28
trillion yuan ($4.04 trillion) at the end of June 2016. It had
risen 42 percent in a year, and analysts estimate it climbed a
further 4 trillion yuan in the second half of last year.
(Reporting by Li Zheng and Elias Glenn; Editing by Richard