China to merge
banking,
insurance bodies
China has unveiled plans to merge its
banking and insurance regulators and
transfer more power to the central bank,
in its biggest regulatory shake-up in many
years.
The move comes as the government
continues to grapple with risky lending
practices and high corporate debts, which
CRITICSûHAVEûSAIDûTHREATENûTHEûlNANCIALû
system.
The new entity, combining the China
Banking and Regulatory Commission
and the China Insurance Regulatory
Commission, will report to the State
Council, the country’s central government,
according to a proposal unveiled during
the annual session of the National People’s
Congress.
Some of the current functions of
the CBRC and CIRC, including drafting
regulations and prudential oversight, will be
transferred to the People’s Bank of China,
according to the proposal. The new regulator
will mostly be charged with implementing
the PBoC’s directives, according to sources.The head of the new regulator is expected
to be announced before the close of the
annual session of parliament on March 20.
Speculation has been rife about the
CREATIONûOFûAûSUPERûlNANCIALûREGULATORûSINCEû
the stock-market crash of 2015, which
highlighted poor inter-agency coordination.
The merger of the CBRC and the
CIRC is a response to issues like unclear
responsibilities and cross-regulation,
according to observers.
“Both China’s insurers and its banks are a
LOTûMOREûDIVERSIlEDûTODAYûTHANûINûTHEûPASTû
Anbang Insurance is a major shareholder
in Minsheng Bank, for example, while Ping
An holds a large stake in HSBC,” said Hao
Zhou, senior emerging markets economist at
Commerzbank.
“It makes much more sense for a single
regulator to oversee these groups as it
reduces the opportunities of regulatory
arbitrage.”
In the last year, China has stepped up
efforts to reduce leverage in the banking
system, while its regulators have repeatedly
warned of the risks associated with shadow
lNANCING
According to Nomura research, the
shadow-banking sector peaked at around
Rmb122.8trn (US$19.45trn) at the end of
December 2016.
In January, the CBRC issued draftregulations that would limit a bank’s
EXPOSUREûTOûUNIDENTIlEDûCOUNTERPARTIESû
in the underlying assets of structured
investments to 15% of its Tier 1 capital.
This means banks will be forced to
identify counterparties on all investments
above this threshold, which would likely
result in an increase in the amount of capital
they need to hold.
The same month, the banking regulator
also issued guidelines banning the use
of entrusted loans, a common feature
in shadow banking, to invest in bonds,
lNANCIALûDERIVATIVESûANDûASSETûMANAGEMENTû
products.
Last November, the PBoC also issued
sweeping guidelines to tighten rules on
the asset-management business as part of a
clampdown on shadow banking.
Most analysts believe China’s Big Four of
Agricultural Bank of China, Bank of China,
China Construction Bank and Industrial
and Commercial Bank of China will be less
adversely affected by these reforms as they
have extensive retail deposits to fall back on.
Nevertheless, AgBank said last week it
had received board approval for a proposed
private placement of A-shares of up to
Rmb100bn as it looks to replenish its
capital due to the country’s deleveraging
campaign.
THOMAS BLOTTPeople
&Markets
IN BRIEF
SSE/SZSE
Plans for tougher delisting rulesChinese stock exchanges on March 9 published
draft rules that would force a company to
delist in the event of serious rule violations,
as regulators step up efforts to discouragespeculative trading.
The rules, which the Shanghai and Shenzhen
stock exchanges published, came a week
after China’s stock regulator said the bourses
should bear more responsibility in delisting
enforcement.
According to the draft rules, among theviolations that could trigger a delisting are
fraudulent IPOs, serious information distortion
in financial disclosures and grave illegal
activities in daily operations.
China set up a delisting mechanism in 2014,
but tougher delisting rules were needed to
keep the stock market healthy and protect
small investors’ interests, the Shanghai Stock
Exchange said in a March 9 statement.