Financial leasing firms getting into trouble - Sara Hsu

+Sara Hsu 

Financial leasing companies, unless they are supported by one of the banks, are increasingly running into problems, as they lose access to funding, writes financial expert Sara Hsu in The Diplomat. " Ordinary financial leasing companies in particular are feeling the funding pinch."

Sara Hsu:

By contrast, many financial leasing companies that are not associated with banks have found it difficult to obtain funding in an environment of low growth and tight liquidity. Sources of revenue stemming from three areas, including interest margin revenue, or interest earnings on leases, residual value revenue, or price earnings on the leased item, and service revenue have shrunk in recent months. Ordinary financial leasing companies regulated by the Ministry of Commerce may fare worse than special financial leasing companies, which face more exacting regulation. For the latter, the CBRC laid out the new Administrative Measures for Financial Leasing Companies on March 13, 2014, lowering the barriers to entry into the financial leasing industry, while requiring at least one eligible commercial bank, domestic large manufacturer, or overseas financial leasing company to hold a minimum 30 percent stake in the company. Ordinary financial leasing companies in particular are feeling the funding pinch. 

Potential financial leasing firm failures would recollect the wave of leasing firm collapses that occurred between 1997 and 2000, as turnover fell sharply. The situation subsequently improved, and as regulations were revised in 2007, the leasing industry was rejuvenated. As the economy boomed, financial leasing loans enjoyed in excess of 54 percent compound annual growth between 2009 and 2013 under loose leverage restrictions. The economic slump that hit once again in 2014 increased risk and funding costs in the industry, particularly for leasing firms lending to trade-sensitive industries such as shipping and packaging. 

Both bank-affiliated and non-bank affiliated financial leasing firms have bolstered their methods of controlling risk, improving both asset allocation and asset management. In an environment of rising non-performing bank loans, some financial leasing companies have also revisited their asset disposal procedures. This is important, as the new regulations for financial leasing companies laid out by the China Banking Regulatory Commission in March 2014 require bank-affiliated financial leasing firms to shore up liquidity where necessary because of solvency problems or operating losses. This increases the obligations on bank-affiliated financial leasing companies. It’s a good thing these firms are safe in the arms of banks, as non-bank affiliated leasing firms continue to suffer.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in more financial experts at the China Speakers Bureau? Do check our latest list.  

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Foreign IT vendors fear new banking rules, and do rightly so - Mark Schaub

Mark Schaub

The China Banking Regulatory Commission (CBRS) brought out last month new regulations to make online banking more safe. But foreign banking institutions and IT vendors fear exclusion from the China market, and they might be correct, writes Shanghai-based lawyer Mark Schaub in China Law Insight. His take-away.

Mark Schaub:

Banks and financial institutions operating in the PRC will have little option but to comply with the reporting requirements and will likely take a “wait and see approach”. They will no doubt have their issues with suppliers and integration with current systems but in the end they will need to do CBRC’s bidding. 

However, MNC software/hardware/service vendors will not be able to have the comfort of such a fatalistic approach. Indeed it will be very difficult for a MNC vendor to have much comfort at all from reading the CBRC Guidelines. 

Vendors will have multiple concerns including loss of competitiveness in the PRC marketplace (a large and ever growing market), erosion of their IP, forced marriages with PRC partners and perhaps the greatest concern of all – that the regulations in the banking IT sector only represent a thin edge of the wedge. The greater concern is that such a policy may be rolled out to other sectors such as insurance, ecommerce, automotive etc.

More in China Law Insight.

Mark Schaub is a speaker at the China Speakers Bureau. Do you need him for your meeting or conference? Do get in touch or fill in our speakers´ request form.

Managing your China risk is an important requisite for any China operation. Are you looking for more experts on risk management at the China Speakers Bureau? Check our list here.    

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The rising risk for private investors in trusts - Sara Hsu

+Sara Hsu 

Trust companies have been taking on much of the local debts haunting China's economy. And most of their debts come from domestic investors in China, who bear most of the risk, when things go wrong, writes financial expert Sara Hsu in this weblog.

Sara Hsu

The China Banking Regulatory Commission, which took over the regulatory role for the TICs in 2003, established many guidelines for their operation. A serious investigation into the TICs was launched in 2004, and a number of scandals were uncovered; by 2005, the number of TICs had unsurprisingly diminished. 

The reincarnation of TICs as trust companies is a result of a 2007 regulation that improved corporate governance and restricted the use of trust companies’ own assets. With the CBRC as a regulatory body, new regulations, and new names, trust companies became quite appealing to the Chinese public. Between 2008 and 2013, trust industry assets under management increased more than seven-fold. Without quite realizing that these companies have a tendency to encumber excessive risks, taking on loans that banks might be prevented from extending directly, the public has viewed trust products simply as deliverers of yield. 

The difference between the TICs and the trusts is that risk among trusts is concentrated among domestic, rather than foreign, holders of trust assets. CBRC officials have been adamant that (domestic) holders of shadow banking products, particularly wealth management products, are the ultimate bearers of risk. In an increasingly market oriented economy, allowing institutions and individuals who take on risks to bear the cost of the risks will likely be more commonplace. And why would the government prop up a flagging industry that has behaved badly in the past, should the economic climate turn sour? The simple truth is that it seems unlikely. The trusts are in danger of joining the TICs in yet another restructuring debacle. This may be the least surprising event in China’s restructuring mix.

You can read her full story here.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

Sara Hsu joined the +China Weekly Hangout on August 30 to discuss the perils of shadow banking in China.
 

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