The yuan has fallen 6.1% against the US dollar so far this year. Photo: Reuters/Kim Kyung-Hoon
The yuan has fallen 6.1% against the US dollar so far this year. Photo: Reuters/Kim Kyung-Hoon

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 comments were prompted by earlier reports in the Chinese media that the People’s Bank of China had already decided to include wealth management products in its newly formed “macro-prudential assessment” framework which forms a comprehensive risk and credit exposure review for individual banks.

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.

“The fourth quarter is the observation period. The regulation will be officially launched in the first quarter of next year,” according to a source from the asset management department of a bank in Jiangsu.

Including wealth management products in the overall assessment is expected to have a large impact on the scale of off-balance sheet wealth management products, the source said, as it will mean taking assets off balance sheets to get around the regulations.

By the end of June this year, the total amount of wealth management products at banks was 26.3 trillion yuan (US$3.88 trillion) — equal to about a third of GDP last year — and up 12% from the beginning of the year, according to the latest report by the banking sector’s wealth management produce registration and custodian center.

Such products are mainly invested in bonds, deposits, and so-called “nonstandard assets,” which are mainly credit-like financial products.

Zhou Hao, senior emerging market economist at Commerzbank 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.

The central bank introduced the macro-prudential regime at the beginning of the year. The new assessment system has also been used to monitor banks’ interest pricing to prevent them from engaging in “vicious competition.”