Three provincial branches of China's banking regulator have told commercial banks to check their off-balance sheet risk in a move to contain the burgeoning "shadow loans" industry, four direct sources told Reuters on Wednesday. This is the latest in a series of steps taken by the China Banking Regulatory Commission (CBRC) to reduce off-balance sheet risks, which includes a prohibition introduced in May against investing in bad loans through bank-issued wealth management products.
The Shanghai, Guangdong and Hainan branches of the CBRC asked banks in their respective jurisdictions to look into new off-balance sheet business and assets, the sources said. It was not known if the provincial directives were limited to these regions or part of a wider national directive to lenders. The CBRC was not immediately available for comment.
The Shanghai bureau asked banks to assess the proportion of their off-balance sheet credit business related to guarantees and derivatives, among other things, one source said. In February, the CBRC issued a notice asking banks to rein in a series of risks, one of which asked lenders to check on off-balance sheet credit businesses. The size of China's "shadow loan" book rose by a third to $1.8 trillion in the first half of 2015, equivalent to 16.5 percent of all commercial loans in China, according to UBS.
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