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BEIJING: China's bank regulator has ordered a ban on the sale of investment trust products that invest in commercial paper, at least five independent sources told Reuters on Wednesday.
The China Banking Regulatory Commission (CBRC), which is also a watchdog of the country's trust investment firms, worried that the rapid expansion of such schemes, worth an estimated 200-300 billion yuan ($32-48 billion), may distort China's overall control of credit, the sources said.
“We have received the phone call today, and the product has been banned,” an executive with a state-owned trust firm told Reuters.
He added that the extremely popular product, which offers investors annualised yields as high as nine per cent, may not be allowed again.
A spokesman for the CBRC was not immediately available to comment. All the sources declined to be named because the policy has not been publicly announced.
The move by the CBRC is the latest effort to clamp down on rampant lending outside of the bank loan business that is tightly controlled by the central bank in its efforts to steer a steady target of money supply and credit growth.
Commercial paper discounting had been a critical way for banks to grant off-balance credit to borrowers, but the CBRC issued a notice in June 2011 ordering banks to be strict in discounting commercial paper provided by companies, effectively cutting a funding channel for many companies.
China's investment trust companies, which typically raised money from wealthy clients to invest in infrastructure projects and financial instruments, filled the gap created by launching trust investment programmes investing in commercial paper.
According to data from CN Benefit, a firm providing trust investment programme information in China, at least 17 trust investment firms launched such schemes in the week of December 16, 2011, alone.
“The expansion of such products in the last quarter of 2011 is amazing and that's why the CBRC decided to put such products on infinite halt,” another source working for a major Chinese trust company, told Reuters.
China's tightly controlled capital markets -- dominated by bank lending and deposit-taking -- and negative real rates of interest have encouraged the nation's banks and investors to channel funds towards opaque, off-balance sheet, risk-laden vehicles.
Investment trust products in total make up about 4 trillion yuan of China's overall off-balance sheet shadow banking system that analysts estimate to be worth up to 10 trillion yuan.
The sheer size of China’s trust investment programmes means regulators are always wary of them. The CBRC restricted programmes jointly issued by banks and trust firms in 2011 and put heavy restrictions on trust programmes that are designed for real estate development.
China's quota of official bank lending for 2011 was estimated at 7.5 trillion yuan.
