[BEIJING] Regulatory measures to curb China's shadow banking growth appear to be having an effect and have prompted a shift in credit activity back to the formal banking system, Moody's Investors Service said on Thursday.
But Total Social Financing (TSF), of which shadow banking is a component, continued to grow more quickly than nominal gross domestic product (GDP), leading to higher overall leverage in the economy, the ratings agency said. "Although shadow banking has continued to grow, it has done so more slowly in recent quarters as regulatory measures to rein in the sector's growth appear to be having an effect," Michael Taylor, Moody's Chief Credit Officer for Asia-Pacific, said in a news release.
The ratings agency estimated that shadow banking assets reached 45 trillion yuan (US$7.25 trillion) at the end of 2014, amounting to 71 per cent of GDP, compared to 66 per cent at the end of 2013. "Maturity mismatches and contagion risks to banks are two of the most concerning factors in the shadow banking system," it said. "Risks from property sector exposures remain elevated with an ongoing downturn in the sector and slowing GDP growth. Real estate and infrastructure account for one third of all trust loan exposures." It also noted that financing activities were shifting to new areas, such as e-financing platforms and margin financing in the equity market, which has helped fuel a blistering rally in mainland China shares. Banks are indirectly financing some of this lending through their short-term purchases of loan assets from securities firms.
The share of margin finance in the daily stock transaction surged to above 16 per cent at end-2014, from an average of only 7 per cent in 2013, it said.
Data last week showed cautious Chinese banks issued far less credit in December, driving cash-starved companies into the shadow banking system in a blow to Beijing's efforts to crack down on the risky sector.