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Shadow banking not seen as threat

2013-03-29 08:19 Shanghai Daily     Web Editor: qindexing comment

China's rapidly growing shadow banking system, estimated at 22.9 trillion yuan (US$3.6 trillion) by the end of last year, will not impose an immediate systemic threat to the financial system, according to private reports.

The amount of credit granted under the shadow banking was equivalent to 34 percent of the total loans in the Chinese banking industry and 44 percent of China's gross domestic output in 2012, Standard & Poor's Ratings Services estimated.

''Over half of the shadow banking credit has lower risk than average bank loans,'' Liao Qiang, credit analyst at S&P's, said in a telephone conference yesterday.

There were 493 billion yuan of outstanding bad loans on the mainland by the end of last year, with an average loan ratio of 0.95 percent, data from the China Banking Regulatory Commission showed.

"We believe major Chinese banks' capitalization, earnings, and liquidity profiles provide a comfortable buffer to absorb any possible hit from shadow banking and credit risks in the wider Chinese economy," said S&P credit analyst Ryan Tsang. "We view China's shadow banking more as a symptom than a cause of some emerging systemic risks to the banking sector and the wider economy."

However less transparency in shadow banking requires stronger regulations to curb possible rising risks, the Royal Bank of Scotland said in a research published yesterday.

''The impact of changes in shadow bank financing is significantly smaller than that of changes in core bank lending. If the government reins in shadow banking but keeps core lending growing, the impact on growth should be contained,'' RBS said.

Defaults of wealth management products, which are part of China's shadow banking system, last year have shown the risks to the financial system for the CBRC. Fitch Ratings said the products may have reached 13 trillion yuan last year.

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