China said to be planning new limits on interbank loans

China has drafted rules which suggest regulators are poised to place new limits on interbank loans, as first reported by the FT.

The rules, drawn up by the China Banking Regulatory Commission, have been reviewed by the paper and are not yet public, but have been seen across the Chinese banking industry. Their implementation would be the latest attempt to quell off-balance-sheet lending, which has been on the rise, as banks use loopholes to bypass current regulation. Over the past three years, the interbank assets at listed Chinese banks has increased 140 per cent, according to Citigroup.

According to Bloomberg sources, the regulations will prevent borrowers from using resale or repurchase agreements to move assets off their balance sheets. Banks would also have to take provisions on such assets while the transactions are in effect.

Previous attempts to clamp down on lending include limits on investments by wealth management products and an audit of local government debt.

The expectation is that this new move would slowdown but not end the accumulation of credit in the country's financial system, as new regulation would give enough leeway for banks to just dress up their interbank businesses slightly differently.