SHANGHAI: Growth of China's trust sector, the largest component of the country's so-called shadow banking system, slowed markedly in the second quarter after a government clampdown on risky lending.
China's top leaders have signalled concern over runaway credit growth and the risk of a debt crisis being sparked by local governments and firms borrowing at high interest rates from non-bank lenders, especially trust companies.
In June, the central bank engineered a short-term cash squeeze as a warning to banks and trusts to scale back risky lending practices.
Data published by China Trustee Association late on Monday showed total assets managed by China's 67 trust firms reached a record-high 9.45 trillion yuan ($1.54 trillion) by the end of the second quarter.
While that was up 8.3 percent from the end of the first quarter, growth decelerated sharply from the 16.9-percent rise seen in the first quarter. In 2012, total assets managed grew by an an explosive 55.3 percent.
Reining in shadow banking is a key element in the leadership's campaign to shift the country's growth model away from its heavy reliance on debt-fueled investment.
The China Banking Regulatory Commission and other watchdogs have issued a slew of new rules to curb banks' risky business.
Trust companies, together with other non-bank financial institutions such as brokerages, have become a vital source of credit, allowing banks to arrange off-balance-sheet refinancing for maturing loans that risky borrowers such as the local government financing vehicles (LGFV) cannot repay from their internal cash flow.
The scale of trust assets still pales in comparison to total banking sector assets of more than 100 trillion yuan as of the end of June. Without trusts, the banking system's non-performing loans (NPL) ratio might be much higher, although accurate estimates are not possible.
Trust companies sell wealth management products (WMP) to raise funds so they can purchase loans that banks want off their books. WMPs are then marketed through bank branches as a higher-yielding alternative to traditional bank deposits.
China's banking regulator recently said that outstanding bank-issued WMPs totalled 9.08 trillion yuan by end-June. The new data on trust company assets appears to encompass about 70 percent of that total, as bank WMPs usually involve cooperation with a trust.
The association data also includes funds that trust companies raise by selling WMPs directly to investors, without partnering with banks.
The latest figures match central bank data released last month showing that new trust lending fell sharply in June, after rapid growth in January through May.
RARE WINDOW
While WMPs often include only spotty disclosures about underlying assets, the trust association data offers a view of where WMP funds are flowing. Some 26.8 percent of outstanding WMP funds were invested in infrastructure at end-June, up from 25.8 percent at end-March.
Real estate accounted for 9.1 percent, down from 9.4 percent at end-March. Industrial firms made up 29.4 percent of investments, up from 27.8 percent. Investment in stocks and bonds fell from 11.1 percent to 10.5 percent.
The banking regulator said the system-wide NPL ratio was 0.96 percent at the end of first half, up only 0.01 percentage point from the end of last year. But, that figure only covers on-balance-sheet loans, leaving a huge amount unmonitored, traders say.
indiatimes.com
China's top leaders have signalled concern over runaway credit growth and the risk of a debt crisis being sparked by local governments and firms borrowing at high interest rates from non-bank lenders, especially trust companies.
In June, the central bank engineered a short-term cash squeeze as a warning to banks and trusts to scale back risky lending practices.
Data published by China Trustee Association late on Monday showed total assets managed by China's 67 trust firms reached a record-high 9.45 trillion yuan ($1.54 trillion) by the end of the second quarter.
While that was up 8.3 percent from the end of the first quarter, growth decelerated sharply from the 16.9-percent rise seen in the first quarter. In 2012, total assets managed grew by an an explosive 55.3 percent.
Reining in shadow banking is a key element in the leadership's campaign to shift the country's growth model away from its heavy reliance on debt-fueled investment.
The China Banking Regulatory Commission and other watchdogs have issued a slew of new rules to curb banks' risky business.
Trust companies, together with other non-bank financial institutions such as brokerages, have become a vital source of credit, allowing banks to arrange off-balance-sheet refinancing for maturing loans that risky borrowers such as the local government financing vehicles (LGFV) cannot repay from their internal cash flow.
The scale of trust assets still pales in comparison to total banking sector assets of more than 100 trillion yuan as of the end of June. Without trusts, the banking system's non-performing loans (NPL) ratio might be much higher, although accurate estimates are not possible.
Trust companies sell wealth management products (WMP) to raise funds so they can purchase loans that banks want off their books. WMPs are then marketed through bank branches as a higher-yielding alternative to traditional bank deposits.
China's banking regulator recently said that outstanding bank-issued WMPs totalled 9.08 trillion yuan by end-June. The new data on trust company assets appears to encompass about 70 percent of that total, as bank WMPs usually involve cooperation with a trust.
The association data also includes funds that trust companies raise by selling WMPs directly to investors, without partnering with banks.
The latest figures match central bank data released last month showing that new trust lending fell sharply in June, after rapid growth in January through May.
RARE WINDOW
While WMPs often include only spotty disclosures about underlying assets, the trust association data offers a view of where WMP funds are flowing. Some 26.8 percent of outstanding WMP funds were invested in infrastructure at end-June, up from 25.8 percent at end-March.
Real estate accounted for 9.1 percent, down from 9.4 percent at end-March. Industrial firms made up 29.4 percent of investments, up from 27.8 percent. Investment in stocks and bonds fell from 11.1 percent to 10.5 percent.
The banking regulator said the system-wide NPL ratio was 0.96 percent at the end of first half, up only 0.01 percentage point from the end of last year. But, that figure only covers on-balance-sheet loans, leaving a huge amount unmonitored, traders say.
indiatimes.com
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