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China curbs banks' expansion outside home base


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China curbs banks' expansion outside home base

The China Banking and Insurance Regulatory Commission has issued a new guideline to rein in unlicensed operations of domestic lenders outside their home base, as part of a move to crack down financial risk.

Under the new guideline, which took effect immediately, Chinese commercial banks, regional cooperatives and policy banks must apply for licenses to operate outside their home base or they will need to shut down those operations, the financial regulator said Dec. 29.

Banks are ordered to close nonoperating units in areas where they have no branches. For overseas operations that have not been approved by domestic or foreign regulators, financial institutions are required to wind down those operations "in a safe and orderly manner."

The regulator has granted a grace period of one year to banks until December 2019 for license application or business closure. A CBIRC spokesperson said the plan to regulate financial institutions' operations will help domestic banks focus on core businesses and serve the real economy more efficiently.

The policy is expected to have a greater impact on Chinese regional banks, which have been the primary drivers of the country's shadow banking system, as their home base is usually more restricted compared to larger lenders, according to a Dec. 29 Bloomberg report, citing industry sources.