The monetary and bond markets fluctuated recently. Some believe that it is a result of the MPA. Zhang Xiaohui, assistant governor of the People’s Bank of China (PBOC), indicated that it is inaccurate in an article published on the China Finance. The MPA is not the source of market volatility. On the contrary, it will remind financial institutes strengthening the overall risks management, stabilize and control the leverage and serves as an essential instrument in preventing systematical financial risks.
It pointed out that there are many factors causing the fluctuation of the market. The prices, the international foreign exchange rate, the regulation and other factors will affect the supply and demand of liquidity. When the overall liquidity remains sufficient and stable, structural liquidity fluctuation is a result rather than the reason for other incidents. It should be more tolerant to normal market fluctuations, which will give play to the adjustment function of the price.
The PBOC has conducted simulative calculation and communications in 2016 before adopting off-balance wealth management into the credit indicators under the MPA. It also disclosed and granted certain buffer period in a report and officially adopted it in the appraisal for the first quarter of 2017. The whole process is stable and orderly and it is generally considered that the end of the first quarter of 2017 is the most comfortable quarter end.
“The MAP plays its role in reducing bubbles, de-leveraging and preventing risks, which is the intention of macro prudent policies”. The article pointed out that during the process of controlling the leverage rate and promoting capitals flowing into real economies, institutes with higher leverage will be under pressure. They will say “shortage of capitals” when facing liquidity shocks.
It also pointed out that the credit growth of financial institutes will affect the MPA results to certain extent, but the MPA is not simply to control or restrict the credit size. When the credit growth of financial institutes exceeds the level that its capitals can support, they will face two choices. Firstly, they will supplement the working capital as soon as possible to support higher credit growth. Secondly, they will appropriately control the credit growth to match the current capitals. It is not a simple credit size management based on the growth base.
In actual operation, some medium and small financial institutes are highly restricted by the MPA. The article pointed out that it is a result of seeking excessive profits and over leverages, which resulted in excessive assets growth exceeding the capacity of their capitals. As a matter of fact, medium and small financial institutes will not face more restrictions than big banks under the condition of steady operation.
For example, 35 (or 25.9 percent) urban commercial banks, 157 (or 14.2 percent) rural commercial banks and 154 (or 14.5 percent) rural cooperatives recorded an increase of over 25 percent in loans as at the end of March 2017, representing about double of the national growth. 182 institutes saw an increase of over 35 percent in loans, accounting for 7.9 percent of the total number of institutes. It is learnt that some urban commercial banks with an asset of over 500 billion yuan even set a target of 60 to 70 percent in loans growth in 2017. Meanwhile, the assets expansion of certain medium and small financial institutes exceeded their capacities for stabilizing liabilities. They have to rely on interbank liabilities and face huge hidden risks.
“If such institutes maintain excessive expansion, high leverage or other imprudent activities, they will be greatly restricted by the MPA”. The article indicated that macro prudent policies are playing their roles.
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