South China Morning Post: Risks Rising for China’s City Commercial Banks

“City commercial banks across China are increasingly relying on interbank funding and wealth management products as deposit substitutes– but growing investment holdings, waning liquidity and weakened capital buffers have rendered them more vulnerable to financial disruption, according to analysts at Fitch Ratings,” reports Laura He for South China Morning Post. Her article focuses on smaller local banks. “Much like mid-tier lenders, city commercial banks have shifted more assets into less-liquid, non-loan financial products, to enhance yield.” Like investors and bankers anywhere, the Chinese are hunting for high yield, and the special wealth management products allow bankers to avoid some regulations. Chinese have about $9 trillion in such wealth management products, and an article in Bloomberg points out many savers anticipate a government bailout should any of these investments fail. The smaller banks often have strong ties to local governments, which emphasize development and employment, He notes, as well as limited access to protections offered by the country’s central bank. – YaleGlobal