CBRC Aims For Tighter Regulations That Don't Spook Market

     BEIJING (MNI) - Tighter regulations for the banking sector are likely to

continue to be implemented during the second half of the year, as the China

Banking Regulatory Commission said in its half-year work summary published on

its website over the weekend, with the CBRC likely to coordinate with other

regulators to minimize market turbulence caused by the new regulatory measures.

     The CBRC affirmed its regulatory accomplishments during the first half of

the year in the summary, stating "the banking sector operates steadily, asset

growth rate has been reasonable, the idle cycling of money has decreased,

support for the real economy has strengthened, and the correction of

inappropriate behaviors in financial sectors" has been realized.  

     But the financial risk prevention situation remains "serious and complex,"

the CBRC said. Five significant risks worthy of regulators' attention include

the potential bounce-back to higher levels of non-performing assets,

cross-industry financial product risks, real estate market risks, hidden

government debt risks, and emerging financial activities risks, the CBRC said.

     In the second half of the year, the CBRC will continue to push the

implementation of regulations to put a damper on those risks. The regulations

will be "serious, strict and hard," rather than "relaxed, loose and soft,"

according to the CBRC.

     The CBRC said it will try to enact a total of 18 new regulations this year.

Zhong Zhengsheng and Zhang Lu, the chief economist and analyst, respectively, at

CEBM group, said in a note that policies targeting interbank leverage are very

likely to be included.

     But the CBRC has also made clear that it is not aiming to spook the market,

like it did in early April when it published several regulatory documents in two

weeks, causing a market panic.

     "The 19th National Congress of the Communist Party of China will be held in

the second half of the year," the CBRC said. "It is of great significance to

regulate the banking sector and to make sure banking sectors operating

steadily."

     The CBRC also said it will "firmly obey the leadership of the State Council

Financial Stability and Development Committee" and "actively coordinate

regulations."

     Analysts said the market impact of new regulatory measures would be slight.

     "The strict regulations will likely continue and the regulation policies

will come out gradually in the second half of the year," Li Qilin and Zhong

Linnan, analysts at Lianxun Securities, said in a report on Sunday. "But the new

regulation measures will consider the practical situation of financial

institutions and market reactions, and give them enough time to prepare. So the

negative impact on markets will be less significant."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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