A view of People's Bank of China in Beijing. File photo: VCG

A lack of transparency may lie behind the accumulating risks in the banking sector, media reports said Monday, citing a central bank working paper. 

According to the working paper, recent bond defaults, as well as the takeover of Baoshang Bank (BSB), show that there is capital misallocation in the market. The working paper stressed the importance of higher standards for information disclosure by financial institutions.

BSB, a failed regional lender in Baotou in North China's Inner Mongolia Autonomous Region, was allowed to go bankrupt earlier this year. Earlier this month, media reports said several top executives were detained as part of the investigation into the bank's collapse. 

China also reported a string of defaults in the bond market, totaling 120 billion yuan ($18.35 billion) in second half of this year, media reports said, citing data from Wind, a financial information database. Defaults on corporate bonds by state-owned enterprises reportedly increased to 51.89 billion yuan this year from 12.93 billion yuan in 2019. 

Apart from bond defaults, market volatility has caused bond issues to be delayed or suspended, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times. 

From November 11 to November 17, a total of 26.5 billion yuan worth of bonds were delayed or suspended, according to a report by the Xinhua News Agency. 

"For some companies, the biggest challenge in the bond market is liquidity. Some companies might be issuing bonds to raise funds for maturing liabilities, so that they can cover up potential risks. An adjustment in the regulations might help with better pricing, but it will take a long time to establish a system that can significantly lower the risks in the market," Dong said. 


Newspaper headline: PBC's working paper urges more transparency to lower financial risks