The China Banking and Insurance Regulatory Commission (CBIRC) is introducing three indicators — the net stable funding ratio, the high-quality liquid assets adequacy ratio and the liquidity matching ratio — to gauge onshore banks’ liquidity levels, the regulator said in a May 25 statement .
Th e net stable funding ratio, a key plank of Basel III bank capital regulations, helps determine whether a bank has enough capital in the long run to support its business development. It will only apply to banks with more than Rmb200bn ($31.3bn) of assets .
Lender s with assets below that threshold will be put to the test with a high-quality liquid assets adequacy ratio, which examines whether these banks have enough good quality capital to cover short term liquidity demands when under stress .
Bu t both groups will be reviewed with the liquidity matching ratio, which simply looks at how well their assets and liabilities match. The higher the score in these three tests, the more abundant a bank’s liquidity .
Th e CBIRC expects banks to hit 80% on their high-quality liquid assets adequacy ratio by the end of the year, and 100% before the end of June 2019. The liquidity matching ratio will officially come into force on January 1, 2020. The net stable funding ratio will kick in on July 1, 2018.
The rules will help commercial banks be more realistic in liquidity management, safeguard the steady operation of the banking system and ensure banks better serve the real economy, the CBIRC said in the statement.
Government ministries must let markets play a bigger role in the economy, Chinese premier Li Keqiangsaid at a May 25 meeting at the State Council .
I n order to widen market access to the outside world, the government must first give up some of its powers — a key objective that many ministries have so far failed to achieve, stifling enterprises’ appetite to invest and the public’s ability to innovate, Li told officials at the meeting.
Li said the government will, as much as possible, step back from directly allocating resources in the markets and from direct intervention in market activities.
RMB bond financing became more expensive offshore than onshore in April, according to Bank of China’s Credits Investment and Financing Environment Difference (CIFED) index. The index ended April at minus 3.6 points — a negative value indicates that offshore yields are higher — down 31.9 points from the previous month.
The bank attributed the change to a drop in onshore yields caused by several surprise factors, such as the reserve requirement ratio (RRR) cut by the People’s Bank of China and the watering down of new rules on wealth management products before implementation. In the meantime, the offshore renminbi bond market remained stable, despite a strengthening dollar and fears of a US-China trade war, with the volume of secondary trading on the up, BOC added.
The bank believes the index will fluctuate between positive and negative territories in the coming months. The onshore market is likely to face a period of adjustment, following a fast fall in yields in April, while the offshore market faces upward pressure as the dollar continues to strengthen.
The London Metal Exchange (LME) is hoping to launch renminbi-denominated products in London, Matthew Chamberlain, the exchange’s chairman, told media last week.
“At present, investors are trading our products in dollars,” he said. “We would definitely like to explore the possibility of launching products denominated in offshore renminbi.”
Chamberlain did not reveal the timeline for the launch or what kind of products he had in mind. But he noted that the LME is drawn closer towards RMB products by a broadening base of investors from onshore China.
“Chinese investors are definitely very active customers at the LME,” he said. “They are trading through mainland brokers who are members of the LME or western firms. We believe with the increasing number of Chinese trading in our market, there [will] be more Chinese companies wishing to join the LME.”
Hong Kong Exchanges and Clearing, the LME’s parent, launched its first RMB denominated gold futures contract last July.
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