HONG KONG: Moody's Investors Service says measures implemented by China's regulators in response to concerns about the banks' wealth management products are positive for the stability of the Chinese banking system. These bank products have effectively become an unregulated shadow credit market.
"In early August, the China Banking Regulatory Commission (CBRC) addressed concerns about China's vibrant and unregulated shadow credit market with new regulations that require banks to bring onto their balance sheets by end-2011 the assets underlying their wealth management products, and set aside loss provisions and capital against them," said Yvonne Zhang, a Moody's Vice President and Senior Analyst.
"These assets until now have been treated as off-balance sheet. The new mandate further imposes restrictions on new product issuance following a one-month ban started in early July. They will result in more transparency and better management of the banks' risk exposures," said Zhang.
Zhang was speaking on the release of a Moody's special comment ' which she authored -- on these recent regulatory measures.
"Specifically, the regulator's action addresses concerns that the banks' risk exposures to these products are not recorded appropriately, nor monitored adequately, and contingent risks could be significant if the products continue to grow unchecked," says Zhang. "Of particular concern is that the credit quality of the underlying loans has been deteriorating."
The wide-ranging Moody's report looks at the magnitude of the problem, the nature of the banks' risk exposures to these products ' which include operational, legal, reputational, credit, and liquidity risks -- and the implications of the regulatory action.
The regulators are also seeking to obtain a true picture of the total credit in the system to ensure proper monitoring and regulation, and that monetary policy is not being circumvented by an unregulated shadow market.
On the other hand, as long as demand exists for such products, Moody's expects the market to develop new products which require close monitoring and regulation.
"In early August, the China Banking Regulatory Commission (CBRC) addressed concerns about China's vibrant and unregulated shadow credit market with new regulations that require banks to bring onto their balance sheets by end-2011 the assets underlying their wealth management products, and set aside loss provisions and capital against them," said Yvonne Zhang, a Moody's Vice President and Senior Analyst.
"These assets until now have been treated as off-balance sheet. The new mandate further imposes restrictions on new product issuance following a one-month ban started in early July. They will result in more transparency and better management of the banks' risk exposures," said Zhang.
Zhang was speaking on the release of a Moody's special comment ' which she authored -- on these recent regulatory measures.
"Specifically, the regulator's action addresses concerns that the banks' risk exposures to these products are not recorded appropriately, nor monitored adequately, and contingent risks could be significant if the products continue to grow unchecked," says Zhang. "Of particular concern is that the credit quality of the underlying loans has been deteriorating."
The wide-ranging Moody's report looks at the magnitude of the problem, the nature of the banks' risk exposures to these products ' which include operational, legal, reputational, credit, and liquidity risks -- and the implications of the regulatory action.
The regulators are also seeking to obtain a true picture of the total credit in the system to ensure proper monitoring and regulation, and that monetary policy is not being circumvented by an unregulated shadow market.
On the other hand, as long as demand exists for such products, Moody's expects the market to develop new products which require close monitoring and regulation.
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