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China's banking regulator moves to contain off-balance sheet risk 

May 4, 2016

Matthew Miller and Meng Meng, Reuters

China's banking regulator, in a move to rein-in the rapidly growing 'shadow loans' industry, has told commercial lenders to properly account for lending products that may appear on their balance sheets as lower-risk investments.
Authorities are tightening scrutiny of the lenders as the growing use of complex financial structures has raised concerns that bad lending and credit risks can be concealed.
The new rules forbid commercial banks from entering into repurchase agreements once a loan's income rights have been transferred, according to a document from the China Banking Regulatory Commission, a copy of which was seen by Reuters.
Banks also are now required to make adequate provisions for transferred loans where the underlying loan assets remain on their balance sheets.
Individual investors also are forbidden from investing in bad loans through bank-issued wealth management products.
Financial institutions have used the transfer of income rights from credit assets to improve their business, the CBRC said, but added that part of the process was "non-standard and opaque". Read more
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