China Banking Regulatory Commission (CBRC) was said to extend a Junedeadline and provide as long as three additional months’ grace for some banksto submit reports reviewing their businesses, including interbank business andentrusted investment, in order to maintain financial stability amid financialdeleveraging, local media reported, citing unidentified person familiar with thematter. This is not the first time that financial regulators softened their tonetowards financial deleveraging. On May 12, CBRC held a press conference toemphasize orderly implementation of regulations and grant 4-6 month phase-intransactions.
(DB views) The implementation of tighter rules is likely to be less strict orslower, which may help relieve market concerns on excessive regulatorypressure on real economy and liquidity risks. However, it does not mean thefinancial deleveraging will stop and we believe it is just half way. We expectthe deleveraging to continue, as the goal of bringing down financial leverageh h v h g v ’ v h h .
If measured by the credit-to-deposit ratio, financial leverage remained elevatedat 114% as of March 2017 vs. the 81% it should be in theory (i.e., 1 minusreserve ratio); we think the regulator may try to bring down the ratio to around100-105%. Facing tighter shadow banking regulations, smaller banks may seeearnings and capital pressure. Please see our report – Rising funding pressure,Series I , II and III .
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