Trust firms benefit from tightening of bank loans
Assets under management at mainland trust companies have ballooned, especially in the real estate sector, as firms seek funds amid restrictions on bank loans.
According to statistics from the China Trust Association, assets under management at the country's trust companies reached 3.1 trillion yuan (HK$3.74 trillion) compared with two trillion yuan in 2009 and 1.24 trillion yuan in 2008. The trust sector has overtaken assets under management at retail funds, which amounted to only US$400 billion last year.
Much of it was spurred by the growth in real estate trust products, a KPMG report found. Combined unit trust products in the real estate sector surged to 199.3 billion yuan last year from 44.9 billion yuan in 2009.
Other trust products, including infrastructure funds and small- and medium-enterprise funds, added to the growth momentum as companies turned to non-bank loans.
Jason Bedford, manager of the financial services sector of KPMG China, said recent tightening measures on bank loans prompted firms to borrow from trust companies.
Mainland individual and institutional investors were also keen to invest in trust products because they covered different asset classes, apart from equities which had experienced market volatility in recent months.
He expected the growth in the trust sector to continue this year and early next year, but said the government might seek to cool the rapid growth in trust loans to ensure quality of risk management.
'The trust companies are not growing the number of staff as quickly as they grow their business,' Bedford said, adding that some trust firms were expanding three or four times their business on a yearly basis. 'This is a risk.'
Liu Li-gang, head of greater China economics at ANZ research, said non-banking financial institutions on the mainland should be kept under close scrutiny.
The lack of regulations for non-banking financial groups in South Korea, Thailand and Indonesia played an important role in the Asian financial crisis as they distorted the financial system.
He expected continued growth in trust loans for real estate and infrastructure sectors as they are supported by urbanisation, which is one of the targets laid out in the 12th five-year plan.
Trust companies are regulated by the China Banking Regulatory Commission, which restructured the trust sector in 2007.
The origin of trust firms dates back to 1979, when China International Trust and Investment Corporation (Citic) was established to invest in projects across different regions. But many subsidiaries went bankrupt in the 1990s because of a lack of regulations. In 2000, the International Monetary Fund estimated the debt of mainland trust and investment companies at between US$12 billion and US$20 billion.