China asks rural banks to limit MF investments amid regulatory push: Report

Financial authorities in eastern China have asked some rural commercial banks to rein in the scale of investments in mutual funds, three sources with knowledge of the matter said.

The move is aimed at curbing small rural lenders' high exposure to bond funds, the sources said, as part of authorities' efforts to cool a sizzling bond rally amid fears of a potential bubble and a Silicon Valley Bank-style crisis.
 

The authorities gave verbal instructions to some rural banks to count their investments in mutual funds as part of their investments via special purpose vehicles, which together should not exceed 2.5% of their total assets, the sources said.
 

The National Financial Regulatory Administration, China's banking regulator, did not immediately reply to a Reuters request for comment.
 

The sources declined to be named as the information is confidential.
 

The central bank has repeatedly warned against reckless bond buying, driven by investors seeking safe harbours in a wobbly economy as banks keep cutting deposit rates and stocks remain volatile.
 

Rural lenders have been among the most aggressive investors in Chinese treasuries as weak loan demand put pressure on their profits.
 

The instruction would encourage small rural lenders to return to their core lending business and control risks from their exposure to financial markets.
 

Last week, China's interbank watchdog said it would investigate four rural commercial banks for suspected bond market manipulation.


 

(Reporting by Reuters staff Editing by Christina Fincher and Susan Fenton)