China testing scheme to gauge shadow banking risk newspaper

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SHANGHAI Oct 27 China is still testing a scheme to include off-balance sheet financing in assessing the health of commercial banks before rolling it out more widely, an influential newspaper quoted the central bank's top economist as saying. The scheme is designed to give the authorities a better sense of, and control over, the country's growing debt problem and underscores worries among analysts that unsustainable credit could hit an already-slowing economy hard."The central bank is collecting relevant data and doing tests at the moment," Ma Jun, chief economist of the central bank's research bureau, said in an interview with China Business Network published on Thursday."The central bank will continue to study the timing and the plan, and will guide commercial banks to strengthen the risk management of their off-balance sheet businesses," Ma said, adding that it would ultimately be implemented in a smooth way. Sources told Reuters this week that the People's Bank of China would make changes to its so-called Macro Prudential Assessment (MPA) risk tool to broaden its regulatory oversight to include wealth management products often sold by banks and not counted on their balance sheets.

By mid-year, the total amount of wealth management products, or WMPs, at banks was 26.3 trillion yuan ($3.88 trillion) - equal to about a third of GDP last year - and up 12 percent from the beginning of the year, according to the latest report by the banking sector's WMP registration and custodian centre. Banks' WMPs are mainly invested in bonds, deposits, and so-called "non-standard assets", which are mainly credit-like financial products.

Zhou Hao, senior emerging market economist at Commerzbank AG in Singapore, wrote in a note that the new rules would apparently require banks to reserve more capital."This is part of the 'risk control' policy package as shadow banking activities have picked up strongly due to monetary easing," Zhou wrote, adding that Chinese authorities have also become wary of a property bubble.

Reuters reported in July that China's banking regulator was drafting new rules to tighten control over the sprawling WMP industry."The most important indications are that WMP yields will continue to fall and the phrase of rapid expansion of WMPs will be over. But the slowing growth of bank WMPs will be good news for other types of asset management products," said Ma Kunpeng, chief financial sector analyst at China Merchants Securities. The central bank introduced the macro-prudential regime at the beginning of this year. The new assessment system has also been used to monitor banks' interest pricing to prevent them from engaging in "vicious competition".