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Moody's: China's financial leasing sector to benefit from new supervisory regime

China's transfer of oversight over financial leasing companies to the China Banking and Insurance Regulatory Commission is credit positive for the nonbank financial sector, Moody's wrote May 16.

The Ministry of Commerce, or MOFCOM, said in a May 14 statement it has transferred its role of regulating financial leasing companies, as well as commercial factoring companies and pawnshops, to the CBIRC since April 20, as the country continues to improve its supervision of the sprawling financial sector.

Putting the regulatory function of financial leasing companies and banks under the same regulator, Moody's said, will streamline the oversight framework and reduce the risk of regulatory arbitrage.

Financial leasing companies were previously regulated either as a nonbank financial company by the CBIRC, or as a corporation by MOFCOM. The former category was subject to higher entry standards, more comprehensive capital requirements and a more stringent regulatory supervision process.

The May 14 statement did not say how exactly the CBIRC will oversee financial leasing companies under the new arrangement.

Moody's said it believes the sector could benefit from an expansion of funding sources if the CBIRC allows them access to the interbank market. It does not expect financial leasing companies previously regulated by MOFCOM to face imminent capital pressure under the new arrangement.

"At the end of 2016, the aggregate liabilities over total assets of MOFCOM-regulated leasing companies was 65.4%, and their aggregate total assets were only 2.9x their net assets. At such levels, there will be no imminent negative capital pressure for most leasing companies, even if they are immediately subject to CBIRC regulations. However, the actual effect on individual companies may vary depending on their asset mix and available capital," Moody's said.