China’s banking regulator has told lenders to conduct checks on improper trading, incentives, innovation and charges, consistent with a document seen by Reuters.
The move is that the latest inside a flurry of orders coming from the regulator after Guo Shuqing took the helm from the China Banking Regulatory Commission (CBRC ) in February.
Chinese regulators want to contain risks inside the banking system as more borrowers find it difficult to avoid defaults and levels of non-performing loans (NPLs ) rise.
Through self-inspections and spot checks, the CBRC wants to ensure there isn‘t any untoward behavior in interbank investment and financing and also the investment of wealth management product funds, two sources with direct knowledge said.
Analysts say those two areas are among the many riskiest potential flashpoints in China’s banking system.
The CBRC Couldn‘t be immediately reached for comment.
We have have conducted on-site regulatory inspections, said perhaps one of the sources who works with a regulator.
The move is to ensure there will be adequate risk safeguards behind innovative business and new products, he added.
Checks on improper innovation cover whether there will be adequate stress tests set up for innovative products and whether management conduct regular risk assessments, based on the document dated April 6.
Inspections of improper trading involve probing interbank business to discover if bank health has been masked by multiple trades and also the impact of sell and buy-back deals on balance sheets, the document added.
Checks on incentives include whether actions are taken purely to manipulate market standings among other activities, while inspections of improper charges will cover unreasonable loan charges.
The news was initially reported by Caijing magazine.
The CBRC told lenders to conduct self-inspections in areas for example using loopholes to circumvent rules at the conclusion of March, consistent with documents seen by Reuters during Monday, the CBRC issued guidelines on risk-control.