Shadow bank­ing of­fers no cause for alarm: Ex­perts

Lever­age in sec­tor re­mains low due to China’s lim­i­ta­tions on de­riv­a­tives

China Daily (Canada) - - BUSINESS - By HUYUANYUAN huyuanyuan@ chi­nadaily.com.cn

China’s bank­ing sec­tor re­mains solid, with the shadow bank­ing sec­tor well un­der con­trol, Yang Kaisheng, for­mer chair­man of In­dus­trial and Commercial Bank of China, the coun­try’s largest lender, said on Thurs­day.

By the end of 2012, China’s shadow bank­ing sec­tor ac­counted for about 10 per­cent of GDP, while the fig­ure in the US was 150 per­cent, ac­cord­ing to Yang, a CPPCC mem­ber.

“Com­pared with some de­vel­oped coun­tries, the to­tal amount of China’s shadow bank­ing is not a big num­ber. More im­por­tant, its lever­age was low, as some of the pop­u­lar de­riv­a­tives in the West were pro­hib­ited un­der­China’s reg­u­la­tory frame­work,” said Yang.

Shadow bank­ing is a term for the collection of non-bank fi­nan­cial in­ter­me­di­aries that pro­vide ser­vices sim­i­lar to tra­di­tional commercial banks.

The re­cent de­fault cri­sis that af­fected sev­eral Chi­nese trust com­pa­nies trig­gered con­cerns about the coun­try’s shadow bank­ing, and some econ­o­mists wor­ried that it could lead to a pos­si­ble fi­nan­cial melt­down.

In the lat­est case, Jilin Prov­ince Trust, which raised 1 bil­lion yuan ($162.5 mil­lion) to in­vest in a pri­vate coal miner in north China’s Shanxi prov­ince, told its clients that it had no re­pay­ment timetable as the debtor it­self was mired in debt.

The trust com­pany missed pay­ments for five tranches. The sixth is due to ma­ture March 11. That fol­lowed a sim­i­lar prod­uct de­fault by China Credit Trust Co in Jan­uary.

Ac­cord­ing to Stan­dard & Poor’s, the rat­ing agency has grown in­creas­ing con­cerns about the fast-grow­ing types of shadow bank­ing credit — non-bank-is­sued wealth man­age­ment prod­ucts .

These are is­sued by an ar­ray of non-bank ac­tors such as lo­cal govern­ment fi­nanc­ing

Com­pared with some de­vel­oped coun­tries, the to­tal amount of China’s shadow bank­ing is not a big num­ber. More im­por­tant, its lever­age was low, as some of the pop­u­lar de­riv­a­tives in the West were pro­hib­ited un­der China’s reg­u­la­tory frame­work.” YANG KAISHENG FOR­MER CHAIR­MAN OF IN­DUS­TRIAL AND COMMERCIAL BANK OF CHINA

ve­hi­cles, property de­vel­op­ers and trust com­pa­nies. The un­der­ly­ing as­sets can es­sen­tially be any­thing. The promised re­turns on these prod­ucts (at around 10 per­cent) tend to be dou­ble those is­sued by the banks them­selves, mak­ing them very at­trac­tive to in­vestors.

And, crit­i­cally, these prod­ucts are sold through the (im­plic­itly State-guar­an­teed) banks, just like the banks’own WMPs.

Cer­tain com­po­nents of the shadow-bank­ing sec­tor, no­tably trust com­pa­nies, may prove to be the weak link in China’s fi­nan­cial sec­tor, ac­cord­ing to Stan­dard & Poor’s.

“How­ever, we ex­pect the credit profiles of ma­jor banks that we rate to re­main ad­e­quate this year,” said Liao Qiang, an an­a­lyst with Stan­dard& Poor’s.

“In our view, the govern­ment’s prag­matic ap­proach to ad­dress­ing shadow bank­ing risks and fine-tuned poli­cies to­ward re­fi­nanc­ing of lo­cal govern­ment debt could tem­per any risk of se­vere credit losses,” Liao said.

Yang also said the liq­uid­ity in China’s bank­ing sec­tor re­mains healthy, based on sev­eral key in­di­ca­tors in the reg­u­la­tory frame­work.

The real liq­uid­ity ra­tio, for in­stance, is close to44per­cent, much higher than the in­dus­try watch­dog’s re­quire­ment of 25 per­cent. And the loan-tode­posit ra­tio is 65.4 per­cent, lower than the ceil­ing of 75 per­cent re­quired by the reg­u­la­tor, ac­cord­ing to Yang.

ZOU HONG/CHINA DAILY

Yang Kaisheng, CPPCC mem­ber and for­mer chair­man of the In­dus­trial and Commercial Bank of China, an­swers ques­tions at a news con­fer­ence on Thurs­day af­ter­noon.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.