China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, three people with knowledge of the matter said, signaling rising concern that defaults may climb.
China Banking Regulatory Commission branches asked some city commercial banks and rural lenders to strengthen liquidity management this year, the people said, asking not to be identified because the matter is confidential. Different requirements are being instituted by province, such as quarterly stress tests, after CBRC studies last year showed increasing risks at those lenders, the people said.
…“Smaller banks are the weakest link of China’s financial system because their lack of a stable deposit base would force them to seek more expensive funding and offer more risky loans,” said Liu Jun, a Wuhan-based analyst at Changjiang Securities Co. “They will be hardest hit when borrowing costs are elevated and the economy slows.”
…One or two small Chinese banks may fail this year as they get about 80 percent of their funding from interbank markets and higher-cost deposits in savings vehicles known as wealth management products, Fang Xinghai, a bureau director at the Office of the Central Leading Group for Financial and Economic Affairs, said in November.
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