Shadow banking expansion to brake

Shadow banking on the mainland is likely to grow at a slower pace, but the sector remains a key source of funds for smaller companies, rating agency Moody's Investors Service said.

Christine Kuo, vice-president of the financial institutions group at Moody's, expects the growth rate of shadow banking assets on the mainland to decline to about 20 per cent this year from 30 per cent last year.

That will be the combined effect of recent directives from the China Banking Regulatory Commission (CBRC) and slower economic growth, Kuo said.

The CBRC ordered banks in March to cap investments of client money in debt that is not publicly traded at 35 per cent of all funds raised from the sale of wealth management products. The investments are limited to 4 per cent of the bank's total assets at the end of the previous year.

Core shadow banking products - those that are relatively non-transparent, loosely regulated and carry credit risk - amounted to 21 trillion yuan (HK$26.5 trillion) at the end of last year, or 39 per cent of the mainland's 2012 gross domestic product, Moody's estimated in a report yesterday. Standard & Poor's estimate in March was 22.9 trillion yuan at the end of last year.

Asked if shadow banking would emerge in Hong Kong, Kuo said because Beijing had set quotas on loans, mainland firms that could not borrow at home often turned to Hong Kong, as well as Singapore and Taiwan.