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RBS sees China 'black swan' risk from loans for non-bank finance

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Chinese banks' surging lending to non-bank financial institutions such as fund managers may pose a "black swan" risk for the nation's financial system, according to Royal Bank of Scotland Group Plc.

[BEIJING] Chinese banks' surging lending to non-bank financial institutions such as fund managers may pose a "black swan" risk for the nation's financial system, according to Royal Bank of Scotland Group Plc.

Lending to such firms had become "the biggest driver of overall credit growth," Harrison Hu, the firm's chief Greater China economist, wrote in a note Monday. Non-bank financial institutions include companies, such as brokerages and fund managers, that aren't allowed to accept deposits, Hu said.

The surge in lending brought with it the risk of an "abrupt reversal" that could trigger an event like China's cash squeeze of mid-2013 if it wasn't properly handled, Hu wrote.

"Chinese banks' lending to the NFIs has been skyrocketing," Hu said. While it would be normal for such increases to take place over five or 10 years, it was "quite a different thing if banks pile up substantial credit and leverage within only one year," he said.

BLOOMBERG