The Shanghai branch of China's central bank has ordered commercial lenders to check for risks in their margin trading business, according to a memo obtained by Reuters.
The move comes after margin trading soared among brokerages, prompting regulators to clamp down on risky behavior earlier this year.
The People's Bank of China (PBOC) ordered commercial banks to provide their margin trading accounts and a list of connected wealth management products (WMP), according to the document and two sources with direct knowledge. This was supposed to have been completed by the end of March.
As China's economy faces its slowest growth for a quarter-century this year, the country's banks made 1.18 trillion yuan worth of new loans in March, beating expectations as authorities ramped up efforts to dampen the impact of sluggish expansion.
In the second half of 2014, margin trading increased rapidly in Shanghai and Shenzhen, with data showing that banks are one of the main sources of margin finance funding, according to the memo. As a result, there was a need to ensure the business is transparent and control risks, it added.
The PBOC asked commercial banks to report risks and the measures that they will adopt to handle them.
The Shanghai branch of the PBOC could not be reached for comment.
"Last year, the PBOC started to tighten control over the WMP market, as proceeds from WMP were inappropriately invested, making the central bank's loan and deposit data less accurate," one of the sources with direct knowledge said.
