Little-known lender in spotlight

By LI XIANG (China Daily) Updated: 2015-07-24 13:29

"CSF has played the market-stabilizing role which is often played by institutional investors in developed markets. It is a reasonable and transitional practice to allow a government institution to fill the empty seat when the market lacks such stabilizing force from mature institutional players," said Yang Qingli, an analyst at investment bank BOCOM International.

"In the long run, the regulator needs to encourage more institutional investors to enter the market as it could help change the speculative nature of the A-share market," Yang said.

During the rescue period, CSF has grown from a little-known financial institution into a powerful market player, acting as a quasi-government buffer fund to stem a sharp market correction that wiped out $4 trillion in market value in less than four weeks.

To strengthen its capital position, the securities regulator has boosted its registered capital from 24 billion yuan ($3.9 billion) to 100 billion yuan.

The company has received credit worth 80 billion yuan from the central bank by issuing short-term bonds. The State-owned Postal Savings Bank of China has also granted loan of 74 billion yuan to CSF, according to media report.

It is likely that CSF will continue to use the funds to finance the brokerages and mutual funds to buoy the market.

CSF was established in 2011 to provide margin loan services to securities brokerages that engage in margin trading, which allows investors to borrow money to purchase stocks. The company also provides services in securities lending to facilitate short selling.

It is a purely government-controlled company with its major shareholders including the Shanghai and Shenzhen stock exchanges and China Securities Depository and Clearing Co Ltd.

Many analysts believe that CSF will play an even bigger role in China's capital market after the stock turmoil. In fact, it has been a major beneficiary of the booming stock market until its recent fall.

The company posted revenue of 4.8 billion yuan for the first half of the year, up 150 percent from the total revenue for whole of last year, said a report published by Chinese newspaper 21st Century Business Herald.