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Bloomberg
China’s banks have managed to sidestep the severest curbs on their shadow banking activity, suggesting the real pain of the deleveraging process lies ahead, according to a report by UBS Group AG.
A squeeze on their interbank borrowing was mitigated through extensive use of a short-term funding instrument called negotiable certificates of deposit, the report by UBS analysts led by Jason Bedford said. Regulators have clamped down on interbank activity because some banks had used it to boost shadow loans and add leverage.
“We believe many market watchers have overestimated the rate of progress†in credit tightening, Bedford’s note said. “A meaningful re-balancing of the banking sector will be a long, drawn out process.â€
NCDs issued by banks grew by 1.5 trillion yuan ($235 billion) in 2017, offsetting the 1.3 trillion yuan decline in interbank borrowing, according to UBS, which compiled the data from regulatory filings. This helps explain why the credit tightening that started in early 2017 hasn’t proved more painful for the banking sector, UBS added.