China Banks Have Yet to Feel the Worst of Deleveraging Pain, UBS Says
- Lenders turned to negotiable certificates to mitigate squeeze
- Rebalancing of banking sector likely to be a long process
Pedestrians walk towards buildings standing in Pudong's Lujiazui financial district in Shanghai, China.
Photographer: Qilai Shen/BloombergThis article is for subscribers only.
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.