[ET Net News Agency, 29 September 2020] Moody's Investors Service said in a new report
that despite some growth in the first half of 2020, shadow banking credit in China will
likely slow in the months ahead while formal bank lending rises.
Shadow banking assets rose by around RMB650 billion in the first half of 2020 to finish
at RMB59.6 trillion, led by a rise in wealth management products from asset managers and
growing undiscounted bankers' acceptances.
"While the one-year delay in the implementation of reforms for the asset management
sector could result in further growth of shadow banking credit in the short term, shadow
banking will come under pressure over the medium term once the Chinese Supreme Court's
lower interest rates on informal lending - including for microcredit, pawnshop loans and
online peer-to-peer lending - kick in," said Michael Taylor, a Moody's Managing Director
and Chief Credit Officer.
In contrast, formal bank lending will continue to dominate new credit supply as banks
maintain a strong flow of long-term credit to corporates, reflecting the government's
policy of providing support to businesses and investment. In the first eight months of
2020, new bank loans reached RMB15.1 trillion, a 25% increase from the same period a year
ago. Meanwhile, net flows from direct financing nearly doubled to RMB4.4 trillion, driven
mainly by corporate bond issuance.
Meanwhile, the decline in trust loans accelerated, with the net flows of trust lending
falling by RMB256 billion between May and July 2020. In particular, net trust flows to the
property sector shrank by RMB203 billion in the first half of 2020 amid stricter
regulatory scrutiny and a crackdown on pass-through channel business. There are also signs
this highly leveraged sector is growing more risk-averse, given the sharper decline in
trust lending in June following defaults by several trust companies. (KL)