China’s new NPL rules will reduce risk of regulatory arbitrage

Author: Karry Lai | Published: 19 Jun 2018

The $15 trillion asset management sector has been a key focus for China as it cracks down on financial risk. The government has now released new rules targeting asset management companies in its wide-ranging efforts to tackle non-performing loans (NPLs). 
While the rules were originally planned for implementation by mid-2019, the deadline has now been pushed back to the end of 2020 to give asset management companies more time to prepare. 
Nicholas Zhu, VP and senior analyst at Moody’s explains that the regulation is credit positive for Chinese financial institutions because the coordinated approach will reduce the scope for regulatory arbitrage. 
"Small and mid-sized banks will benefit most because they originate and manage large amounts of asset management products, and they also have large investments in asset management products originated by other financial institutions," said Zhu. 
He added: "The regulation will reduce the increasing interconnection among financial institutions. It will...