China review stresses debt management

Beijing plans to increase oversight of debt management and corporate governance at Chinese lenders, Hong Kong is ready to include Star-listed A-shares into the Stock Connect, and the securities regulator gives the nod to set up a new futures exchange in Guangzhou.

Chinese banks recorded a foreign exchange settlement surplus of $158.7bn in 2020, shows data from the State Administration of Foreign Exchange (Safe). The amount was Rmb1.078tr in renminbi terms.

The total assets of the Chinese banking industry grew 10.1% year-on-year in 2020 to reach Rmb319.7tr, with a 10.2% rise in total debt to Rmb293.1tr, data from the China Banking and Insurance Regulatory Commission (CBIRC) showed.

Banks disposed Rmb3.02tr of non-performing assets last year, with Rmb3.5tr still outstanding. Their non-performing loan (NPL) ratio dropped 0.06 percentage points to 1.92% by the end of 2020, compared to the start of the year.

Insurance companies in China reported Rmb23.3tr in assets last year, showing a 13.3% annual growth, according to the CBIRC.

The CBIRC has drafted debt management guidelines for commercial banks, requiring lenders to use relative ratios and internal quotas to manage debt risks.

Banks have also been told to diversify their debt, make sure their liabilities match their assets – such as the tenor, currency, interest rate and foreign exchange rate – and keep the cost of funding reasonable. The regulator requires lenders to submit an annual report on internal debt management before the end of March every year.

The regulator is taking feedback on the rules until February 22.

The CBIRC has published an analysis on corporate governance at Chinese banks and insurers. The regulator evaluated 1,792 institutions in 2020. Close to 11.7% of them were given a ‘D’ ranking, meaning they have ‘relatively weak’ corporate governance. Some 10.2% of the firms fell in the lowest ‘E’ category.

The regulator plans to increase oversight of corporate governance at banks and insurers in 2021. It is working on the release of regulations including corporate governance guidelines and the management of related transactions, as well as a crackdown on violations by shareholders of the institutions.

The People’s Bank of China (PBoC) has published rules for customer reserves management at non-bank payment institutions.

Firms are required to set up reserve accounts at commercial banks that have at least Rmb100bn of total assets, starting March 1. Separate accounts are needed for cross-border renminbi payments and foreign currency exchange.

The central bank also requires non-bank payment institutions to pick one clearing agency responsible for monitoring the deposit, use and transfer of customer reserves.

China’s recent antitrust measures for non-bank payment institutions are not targeted at the private sector or one particular company, a senior CBIRC official said at a State Council briefing last Friday.

The increased scrutiny will not hinder the normal business development of the related firms, he said, adding that Chinese banks and insurers will be encouraged to cooperate with internet platforms – including those like Ant Group which have had talks with financial regulators – as long as such cooperation complies with relevant laws and regulations.

Eligible A-shares listed on the Shanghai’s Star market will be included in the Stock Connect programme linking the markets of the Mainland and Hong Kong from February 1, said the Hong Kong Exchanges and Clearing (HKEX).

The announcement followed a move last November from the HKEX and the bourses in Shanghai and Shenzhen to expand Stock Connect to include eligible pre-revenue biotechnology companies listed in Hong Kong, and eligible A-shares listed on the Star market.

As previously agreed, Star-listed shares that are constituent stocks of the SSE 180 Index and SSE 380 Index or have H-share counterparts will be eligible for Northbound trading under the Shanghai-Hong Kong Connect. Their corresponding H-shares will be included in Southbound trading.

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