Central Bank CBRC Opens Prescription To Solve Local Financing Platform Dilemma

Zhou Xiaochuan, President of the people's Bank of China, is also planning for the local financing platform.

In April 18th, at the centenary anniversary of Tsinghua University, Zhou Xiaochuan delivered a speech as a Tsinghua alumni, pointing out that the departments concerned are actively studying the issue of municipal debt. Through the combination of municipal debt and property tax, a binding and effective capital flow can be formed to help solve the financing problem in the process of urbanization in China.

"The introduction of municipal bonds may solve the risks of local financing platforms that are currently being watched by all sectors."

One bank believes.

A solution to this problem, a constant warning of risks, is the two leading unit of commercial banks trying to solve the problem of local financing platform loans.

Improving the accuracy of loan classification

In April 19th, the CBRC held the second economic and financial briefing in 2011, summarized and judged the macro situation at home and abroad, analyzed the risks faced by the banking industry, and put forward the requirements for the next phase of the banking industry.

In the press release of the CBRC's official website, Liu Mingkang (column) refers to the risks of local financing platform loans, the risks of real estate loans, group customer risks, country risks and liquidity risks, and so on.

In the loan risk of local financing platform, Liu Mingkang asked commercial banks to implement strict and accurate classified management, strengthen communication and coordination among all parties, and effectively improve the consistency and accuracy of different banks' "four classification" results of loans from the same platform.

The above banking staff pointed out that the accuracy of the five level classification of commercial banks to platform loans was reflected in the design of new capital regulatory indicators last year, for example, the increased provision rate is that the total provision and loan amount should not be less than 2.5%.

Regulators are also considering whether commercial banks can identify all kinds of risks accurately in the classification of platform loans, and accurately classify platform loans.

After all, when commercial banks issued platform loans in 2009, they were very impulsive, and local governments also had a great impact on some platform loans, which might lead to inaccurate classification.

A staff member of a local banking supervision system said earlier that when regulators had asked us to clean up the stock platform loans, we had a good communication with local governments, local branches and bureaus and the commercial banks of the regulators.

The risk of local financing platform loans has been warned every time the CBRC meets Quarterly Bulletin.

According to statistics, at the end of 2010, the balance of local financing platform loans was 7 trillion and 660 billion, and the CBRC did not disclose the specific number of loans for local financing platform.

Although platform lending has not yet had specific official data, it has always been one of the reasons why Fitch has seen the Chinese banking industry empty.

In mid April, Fitch pointed out that asset quality in China's banking sector may continue to deteriorate in the next 3 years.

The excessive expansion of China's banking industry, the domestic local financing platform and real estate loans bear the brunt of the risk source.

However, in the annual report issued by the CBRC, as at the end of 2010, the balance of non-performing loans classified by five banks was 433 billion 800 million yuan, and the non-performing loan ratio was 1.13%.

"We have been cleaning up the platform loan. After all, there are other countries working units to participate in it. We should first deal with the risks of platform lending."

The banking regulatory system pointed out.

In March 1st, 18 special offices of the Audit Commission and 37 local audit institutions began a comprehensive review of government debt in 31 provinces, autonomous regions and 5 municipalities.

In the process of local government debt review, it is absolutely necessary to clarify the review of the financing platform.

Research on municipal debt

Municipal debt is a kind of direct financing. At present, local governments can not issue it themselves.

In the budget law, the twenty-eighth provision stipulates that local budgets should be compiled according to the principle of balance between income and expenditure and balance of payments.

Except for other provisions of the law and the State Council, local governments shall not issue local government bonds.

In April 18th, Tsinghua financial high end forum, central bank governor Zhou Xiaochuan pointed out that the cooperation between municipal bonds and property tax can solve the financing problems in the future urbanization process.

Although municipal debt is impassable, since 2009, the local government has issued quasi municipal bonds such as corporate bonds through the investment and financing platform. The central bank and the CBRC also supported the "guiding opinions on Further Strengthening the credit structure adjustment and promoting the steady and rapid development of the national economy", while the rapid growth of the local financing platform in 2009 also reflected the demand of local governments for municipal debt.

Zhou Xiaochuan said in the forum that rather than allowing local governments to make a disguised deficit through financing platforms, it is better to allow local governments to issue municipal bonds directly. Financial markets can price bonds and assess risks. Different city bond prices are different, which will form different binding forces, which will help prevent risks and form an incentive mechanism.

Although municipal debt is not allowed, there seems to be a trend towards solving problems.

In the forum, Zhou Xiaochuan also said that the relevant departments are actively studying the issue of municipal debt.

Tracing back to the two sessions in 2011, Premier Wen Jiabao pointed out that the local government debt should be comprehensively audited, the full caliber supervision should be implemented, and a standardized local government debt financing mechanism should be established.

A more positive signal is that in December last year's economic work conference, the government also proposed raising the proportion of direct financing, and for the first time in 2011, used the total amount of social financing to carry out macroeconomic regulation and control, and announced the amount and composition of total social financing in the first quarter.

Zhao Qingming, senior economist at China Construction Bank, pointed out that local financing platform is a very pressing issue no matter whether municipal bonds are being discussed.

At present, commercial banks are no longer issuing new financing platform loans, and it has been 3 years since 2009, and some loans have already been under the pressure of repayment.

If municipal bonds can be issued, the incremental loan replacement platform can solve the problem of mismatch of platform loan period, and can support the capital problem of urbanization in the future.