PBOC Puts Limits on Commercial Financing

The People’s Bank of China (PBOC) has published new rules designed to place a cap on bank’s commercial financing operations, while also bolstering risk management for the use of commercial bills.

As Reuters reported Friday (Jan. 14), China’s central bank has ruled banks and finance companies are not allowed to carry out commercial financing business of more than 15% of their total assets.

The new rules, released Friday in draft form, say that banks and other lenders should use more caution when conducting commercial paper business, while also taking steps to prevent market and credit risks.

The report notes that Chinese companies routinely use commercial paper as a payable that promises to pay suppliers by a certain date. More and more sectors, such as property, are using it as a financing method as they find themselves shut out of other funding options.

These rules come just a week after the PBOC released its Financial Science and Technology Plan for 2022-2025, aimed at helping the FinTech industry grow.

Learn more: PBOC Has Open Banking, Supervision, Regulation on 2022-2025 FinTech Agenda

In the plan, the bank suggests that while open banking is popular among consumers, regulators need to act to strengthen their control over how tech companies collect and use banking data.

According to the PBOC, the plan aims to “strengthen the application of financial data elements, with the goal of deepening the structural reform of the financial supply side and accelerate the digital transformation of financial institutions.”

The bank says it is aware of the power of data for financial institutions to attain this digital transformation. That’s why the plan contains several elements that promote data sharing, while also underscoring the need to “strengthen the prudential supervision of financial science and technology,” for which new regulations may be on the horizon.

Read more: What’s Ahead for Chinese Banks in 2022

At the start of this year, a report from S&P Global Market Intelligence said banks in China are facing slow loan growth, tightening magins and rising credit risks as the government tries to free liquidity for lending, which was at its lowest pace in 15 years.