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.
"It is an ongoing process," she said. "But banks in the city often require guarantees and collateral for loans. If the mainland borrowers cannot provide them, they have to turn to other financial institutions, like deposit taking companies [which offer loans at very high interest rates]."
Banks have had less difficulty attracting savings this year and do not need to offer yields as high as before on their wealth management products, reducing demand for them, said an analyst who asked not to be named.
Even in more advanced economies, shadow banking remains a key channel of credit intermediation that complements the formal banking system, said Hu Bin, a vice-president and senior analyst at Moody's. Its mainland growth has provided borrowers that have limited or no access to regular bank loans with an alternative source of funds, as a result reducing pressure on banks to finance less creditworthy segments of the economy, Hu said.