China urges big lenders not to flee small non-banks after Baoshang woes: sources
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BEIJING / SHANGHAI (Reuters) – China’s securities regulator has asked several large non-bank financial institutions to lend on the interbank market to smaller non-bank companies to help alleviate potential cash shortages, sources with direct knowledge of the matter told Reuters on Monday.
Measures to avoid potential instability among small financial institutions come as Beijing faces pressure to increase bank lending to help cushion the economic impact of higher tariffs on Chinese imports imposed by states -United.
Chinese money markets were rocked after regulators took control of Inner Mongolia-based Baoshang Bank on May 24 due to “severe” credit risks.
As a result, the central bank has injected liquidity into the banking system to reassure lenders, and regulators have repeatedly downplayed risks at small financial institutions.
Still, some smaller non-bank institutions still suffered from a shortage of funds last week after being denied loans in the interbank market, traders said. The financing costs of small financial institutions have also increased since the takeover of Baoshang.
In a meeting on Sunday, Li Chao, vice chairman of the China Securities Regulatory Commission (CSRC), urged large non-bank institutions not to exclude small non-banks as counterparties in the interbank market. .
Executives from seven major securities companies and two fund companies attended the meeting in Beijing, the four sources said.
According to the minutes, confirmed by the sources, Li also asked them to increase their quota of loans for short-term bonds and offer more financing tools to support small brokerage firms.
Regulators also relaxed rules that would make it easier for some brokerage firms to issue debt, and said China’s top five lenders will provide financial support to the country’s five largest brokerages.
LIQUIDITY RISK
The minutes showed that regulators are aware that the risk of liquidity in the bond market has spread to non-banks, and that there was a growing sense of “mistrust” among financial institutions following the takeover of Baoshang.
The CSRC did not immediately respond to a Reuters fax request for comment.
After the takeover of Baoshang, investors are scrambling to revamp the way they value negotiable certificates of deposit and other instruments once considered ultra-safe, traders and fund managers told Reuters.
“Previously, investors were looking for high returns, now avoiding risk is the top priority,” said a Shanghai-based mutual fund manager, who declined to be named. “Under the current circumstances, if you are not sure whether to buy or not to buy, just avoid buying.”
Although small banks and other lenders are not in themselves considered a systemic financial risk, the problem is that a sufficient number of them have largely financed themselves by short-term borrowing in the money market. which represents a collective danger if one or two fail.
“The CSRC is worried about further risk contagion and wants to strengthen communication with the market,” a senior official at a major brokerage firm told Reuters.
Asked how the company would support smaller non-banks after the CSRC asked for its support, the source said: “As far as we’re concerned, we’ll wait to see how strong the support from regulators is, in particular financial support. “
Reporting by Cheng Leng, Samuel Shen, Xiaochong Zhang, Zheng Li and Ryan Woo; Editing by Simon Cameron-Moore and Jacqueline Wong
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