China Banks Chase New Types Of Assets Amid Crackdown

     BEIJING (MNI) - Commercial banks are now looking to buy assets -- including

private placement notes (PPNs) and credit assets listed on the Banking Credit

Asset Listing and Turnover Center (BCALTC) -- to fill the space caused by the

withdrawal of entrusted investments and sales of interbank assets, as China's

financial regulators continue to crack down on the "idle cycling" of interbank

business, according to various sources.

     Interbank assets and interbank liabilities in Beijing' banking industry

decreased 29.8% and 13.5%, respectively, in the first half of 2017, according to

the Beijing Banking Regulatory Bureau, showing how large the interbank assets

have contracted so far this year because of regulations. A recent survey

conducted by Hua Chuang Securities shows that most banks feel the regulations

have largely had a negative impact on entrusted investments, and the existing

entrusted investments need to be either stopped or adjusted.

     PPNs, and loan assets listed on the BCALTC -- which is regulated by the

China Banking Regulatory Commission -- have become some banks' new favorites. A

PPN is a type of bond issued by companies directly to a certain group of

investors and is considered a standard asset. 

     Banks can also transform their non-standard assets to so-called "non-non

standard" assets by selling their assets on the BCALTC.

     "The products sold at the BCALTC belong to neither standard assets nor

non-standard assets, so they cannot be treated as non-standard assets by

regulators," Yuan Jiwei, who works for a trust company, wrote on the Wechat

platform. "So this actually provides motivation for financial institutions to

sell and buy assets on the BCALTC."

     Standard assets are more attractive to banks than non-standard assets

because the amount of non-standard assets they can hold is limited, and they

often require higher risk reserves than the former.

     Another advantage of investing in PPNs and listed loan assets is that doing

so fits into China's overall regulatory theme -- to direct money into the real

economy -- and therefore regulators will not likely say no to such businesses.

     "The serious examination of BCALTC guarantees that the underlying assets

are not in the real-estate sector or local government financial vehicles," a

source at a commercial bank was quoted as saying in a report on wallstreetcn.com

on Tuesday, adding that he is looking for projects that have a bright future, in

line with the government's regulatory policy theme.

--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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