The China banking and securities regulatory commission listed measures of improving conduction mechanism of monetary policy on August, including offering more loans, strengthening banks’ ability of lending loans, and implementing supervision over loan renewal without repayment of principal. The commission indicated that it will enhance planning and coordination and further facilitate finance to serve the real economy in the future.
Offer more loans
Recently, there were more loans were released. China banking and securities regulatory commission unveiled that the new RMB loans increased by 623.7 billion yuan year on year to 1.45 trillion yuan in July.
More loans were provided to infrastructure field to improve the weak links. The new loans offered to infrastructure sector in July recorded 172.4 billion yuan, up by 46.9 billion yuan from a month earlier.
The capital source will be a key issue if increasing infrastructure infrastructure investment in the future, said Xue Hongli, general manager of financial market division of Shanghai Pudong Development Bank.
“If the local government bonds and bonds for specific purpose can act as principal, bank can catch up with lending loans without problems. However, there’re not many bonds for specific bonds and it may need to be clear that who should be responsible for the capital input. If capital source is tackled, and policies about asset management, wealth management and investment in the same business are coordinate, infrastructure investment to strengthen weak link may be accelerated,” said Xue.
Under the strict supervision and deleverage, the size of trust loans and entrusted loans declined significantly in the first half of this year. For instance, the amount of entrusted loans fell by 800.8 billion yuan, 1.4 trillion yuan fewer than that at the same period of last year.
Yet changes took place in July. The regulatory commission indicated that changes in off-balance-sheet financing like trust loans and entrusted loans gets flat. This implied that regulators instructed banks to increase capital input and provided guidance on both on-balance-sheet and off-balance-sheet businesses so as to ensure the effective financing demand of the real economy.
Whether can such stable change keep going? In the opinion of Xue, the change in off-balance-sheet financing will be up to the implementation of new rules on asset management and wealth management. If problems like standards about asset-backed securities, credit derivatives and investment in the same business, which the market is quite concerned about, are specific, the size of entrusted loans and trust loans may truly grow steadily and may pick up slightly amid stability.
Strengthen banks’ ability of loans releasing
The commission will also focus on improving banks’ ability of releasing loans besides guiding banks to increase capital input to guarantee effective financing demand of the real economy.
Some experts suggested adjusting macro-prudential assessment on banks, broadening capital channel and relieving banks non-performing assets’ pressure on principal. At present, the regulators do the same as the suggestions.
Firstly, they adjusted supervision requirements on loan loss reserves and encouraged banks to increase efforts in disposing non-performing loans by taking favorable advantage of abundant provisions. The commission stated that it dealt with about 800 billion yuan of non-performing loans in the first half of this year, 166.5 billion yuan of loans more than that in the same period of last year. This provided more room of the credit loans.
Secondly, they determined risk of market-based debt-to-equity swap, promote the capitals released by cutting reserve requirement ratio to support the debt-to-equity swap so as to vitalize existing capitals and improve turnover of capitals.
Xue Hongli said that to reduce the risk weight will facilitate market-based debt-to-equity swaps. “Some companies that carry out debt-for-equity swaps are facing difficulties in turnover. Some are entering the industry's 'sunset period'. They may need some time to deal with their problems.”
But he also believes that one thing that needs to be clarified in debt-to-equity swaps program is that whether banks are merely financial investors, or they will become involved to improve the company’s operations.
Thirdly, it needs to urge banks to appropriately increase the proportion of profit retention, consolidate core capital, support banking institutions, especially small and medium-sized institutions to replenish capital through multiple channels, and open up channels for commercial banks to supplement first-tier capital to enhance credit capacity. Based on data in June, the capital in commercial banks remained stable while their on-balance sheet loans expanded rapidly.
Xue Hongli believes that banks are now facing pressures from two aspects. First is that after the implementation of the new regulations on asset management, the off-balance sheet assets are required to return to the balance sheet, which will dampen capital. On the other hand, in the face of the new economic situation at home and abroad, industries are diverging. In the process, there are good assets and based assets formed. “The pressure is uncertain, and capital is inherently resistant to uncertain risks.”
Previously, the regulators had explicitly proposed to support the innovation of commercial banks' capital instruments and encouraged banks to expand their capital replenishment channels. Xue Hongli believes that there is a need for guidelines to facilitate bank to operate and implement. "This requires the coordination of the relevant ministries. Therefore, the China banking and insurance regulatory commission also clearly stated that it will strengthen overall coordination in the next step."
Strengthen overall coordination in the next step
To solve difficulties and reduce financing costs for small and micro enterprises, the China banking and insurance regulatory commission mentioned it has implemented regulatory policies such as repayment of loans and due diligence.
In the first seven months of this year, bank loans to small and micro enterprises increased by 1.6 trillion yuan, and the growth rate continued to be higher than the growth rate of all loans during the same period.
The China banking and insurance regulatory commission said that it will adhere to the overall tone of seeking steady progress, strengthen overall coordination and work in a down-to-earth manner to unblock the "last mile" of the financial services entity economy and improve the economic efficiency of financial services entities.
In Xue Hongli's view, regulatory policies have shown signs of loosening over some time in the past, For example, the new regulations for asset management spcify that during the transition period, new products can be issued to invest in new assets. For example, the requirements for non-standard and channel business of trusts should be relaxed. These changes may gradually smooth out the transmission mechanism of monetary policy in the future.
Translated by Vanessa Chen, Coral Zhong
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