* China regulator orders banks to "self-inspect" arbitrage
* Lenders told to probe any cover-up of non-performing loans
* Banks need to check actions that manipulate regulatory
(Adds details, background)
SHANGHAI, April 11 China's banking regulator has
told lenders to conduct "self-inspections" in areas such as
using loopholes to circumvent rules, in order to boost
supervision of the vast shadow banking sector, according to
documents seen by Reuters.
The move is the latest by Chinese regulators to contain risk
in the banking system, as more borrowers struggle to avoid
defaults and levels of non-performing loans (NPLs) rise.
The China Banking Regulatory Commision (CBRC) wants to
better understand the amount of leverage in the banking system
and prevent lenders from hiding the true extent of soured debt,
three sources told Reuters late on Monday.
The CBRC could not be immediately reached for comment.
An attachment to a document dated March 28 that was
circulated to lenders specifies subjects for self-inspections.
It says they should check whether asset management plans
have been used to avoiding reporting the extent of NPLs in order
to meet targets, and whether bridge financing and short-term
loans have been made to hide defaults and artificially adjust
WEALTH MANAGEMENT PRODUCTS
Also to be scrutinized, according to the documents, are
wealth management products (WMP) that can be used as a way to
evade lending controls and buy-back transactions which can be
used to artificially adjust targets.
False transfer arbitrage should also be checked, the
documents said, including the use of bills, credit, WMPs and
interbank lending to falsely raise deposit levels and revenues.
Related-transaction arbitrage, such as the use of domestic
or foreign subsidiaries to avoid rules restricting lending to
local government platforms, should also be checked, according to
Last year, bad loans written off and transferred out by
China's top five banks rose by 16 percent to 309.6 billion yuan
Moody's Investors Service said in December that Chinese
banks are facing increasing risks as a result of financial
sector interconnectedness between the formal banking system and
the shadow banking system, which has doubled in size the past
five 5 years with its assets equal to 82 percent of GDP at the
end of June 2016.
Separately, the CBRC on Monday issued guidelines on risk
control for lenders, as authorities ramp up efforts to deal with
a rapid build-up in debt.
(Reporting by Li Zheng and Brenda Goh; Additional reporting by
Ma Rong and Zhang Shu in Beijing; Writing by Engen Tham; Editing
by Richard Borsuk)