CASH MANAGEMENT | Staff Reporter, China

China banks move forward on liquidity risk management front

Lenders may soon shun less stable short-term funding sources amidst clearer guidelines.

China’s banks are set to receive a boost as the country’s banking and insurance regulator publishes final rules on liquidity risk management with clearer guidelines expected to keep lenders in line with various regulatory requirements, according to credit rating agency Moody’s.

Larger banks will now be formally subject to net stable funding ratio (NSFR) requirement which should promptly limit their reliance on less stable short-term funding sources. Banks with assets of more than $31.22b (RMB200b) will be subject to a minimum liquidity coverage ratio (LCR), NSFR, liquidity ratio and liquidity matching ratio requirements.

Also read: China's big banks turn to short-term financing to offset deposit woes

As the LCR and NSFR requirements are largely in line with the guidelines in the Basel regulatory frameworks, the gradual phase-in periods will allow banks to meet the requirements without causing massive shocks to system-wide liquidity conditions, Moody’s added.

Also read: Chinese banks thrive on mobile payments as millennials drive cashless push

“In our opinion, it is credit positive that banks regardless of their size will need to set aside highly liquid assets to meet unexpected fund outflows,” the credit rating agency noted.

Banks with assets of less than $31.22b (RMB200b) will be subject to simplified regulatory liquidity requirements, including the high quality liquid asset adequacy ratio, which is easier to calculate than the LCR requirement, in turn easing regulatory compliance burdens.

The high quality liquid asset adequacy ratio also aims to ensure that banks have sufficient highly liquid resources to meet unexpected fund outflows over a 30-day period.

Photo from dawvon - Pudong, CC BY 2.0

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