China’s bank regulator has cracked down on off-balance-sheet lending by the country’s banks as its latest step to prevent risky lending from hurting its financial system, sources told Reuters on Monday.
The China Banking Regulatory Commission (CBRC) has ordered banks to check all their deals in discounted commercial bills after discovering misconduct among some banks, two sources said.
Chinese banks have in the past year taken to off-balance-sheet lending, or keeping loans outside balance sheets after authorities clamped down on bank loans as part of their fight against inflation.
Last week, the regulator tightened control on sales of wealth management products to ward off potential risks, and the regulator had earlier told banks to include all their loans extended via trust investment programs into their account books.
Discounted bills, an important source of financing for firms with no access to formal bank loans, accounted for about 2.5 percent of the 49.5 trillion yuan ($7.7 trillion) of total outstanding loans at the end of March, according to data from the central bank.
Under China’s laws, banks’ deals in discounted commercial bills should be reflected on their balance sheets.
Banks have been asked to investigate all deals linked to discounted commercial bills and submit their findings by Monday, sources said.