[ET Net News Agency, 24 June 2020] Moody's Investors Service said in a new report that
broad shadow credit increased for the first time in 2.5 years in 1Q, while economy-wide
leverage - as measured by adjusted total social financing as a share of nominal GDP - also
rose strongly.
In part due to the economic contraction resulting from the coronavirus outbreak, broad
shadow banking assets as a share of nominal GDP increased to 60.3% in 1Q 2020 from 59.5%
at the end of 2019.
"We expect leverage will continue to rise for some months as monetary and credit
policies are eased to support China's economic recovery, although the overall increase
will be limited as the government remains focused on financial stability," said Michael
Taylor, a Moody's Managing Director and the Chief Credit Officer for Asia Pacific.
"At the same time, increased infrastructure lending has arrested the previous decline in
trust loans, while trust lending to local government financing vehicles (LGFVs) also
rebounded in the first quarter to reflect policy support for LGFV-led infrastructure
projects," added Lillian Li, a Moody's Vice President and Senior Credit Officer.
The interconnectedness between banks and non-bank financial institutions (NBFIs) also
rose for the first time in 12 months, as the easier monetary policy environment has
incentivized small banks to improve loan yields by funding NBFIs.
Finally, investors also showed a rising preference for more liquid assets such as money
market funds (MMFs) and short-tenor wealth management products amid coronavirus-related
uncertainty. Assets under management at MMFs grew in 1Q 2020 after a year of contraction.
(KL)