Brokerages eye bigger share of shadow banking market

As increased regulatory oversight curbs the growth of China's trust companies, securities firms are seizing the chance to boost their share of the shadow-banking pie.

The value of assets managed by brokerages surged 43 times in the last two years to 5.2 trillion yuan (HK$6.54 trillion), compared with a two-fold increase for trusts and a 41 per cent gain for mutual funds, a Securities Association of China report showed.

Securities firms' advance into off-balance-sheet lending reflects the difficulty of policing the shadow-banking industry, which is estimated by Barclays to be worth 38.8 trillion yuan and has yet to experience a high-profile default even as economic growth slows and property sales cool. The China Securities Regulatory Commission oversees brokerages, while trust companies are supervised by the China Banking Regulatory Commission.

"Over the past two or three years, we've seen the CBRC issuing restrictions on trust companies, while at the same time the CSRC hasn't come up with any type of severe restrictions," said Ivan Shi, a Shanghai-based analyst at Z-Ben Advisors.

The US$1.9 trillion trust industry came under scrutiny in January when a three billion yuan product issued by China Credit Trust to raise funds for a coal miner teetered on the brink of default. Four days before the payment date, Industrial and Commercial Bank of China, the product's distributor, said investors could recoup their funds, without saying where the money would come from.

The "day of reckoning" is approaching for the industry, with repayments peaking at 2.12 trillion yuan this quarter, Haitong International Securities economist Hu Yifan wrote last week.