Shadow banking sector growth beginning to stabilise

Growth in the mainland's shadow banking sector probably began to stabilise in the first half of this year, according to new industry data.

But the slowdown in growth in key segments such as trusts belied expansion in more opaque investment products and the accumulating risk in refinanced property loans, analysts said.

Trust products, already flagged as a flashpoint for defaults this year, grew by 25 per cent year on year in the second quarter, down from 35 per cent growth in the same period last year, data from Moody's Investors Services showed.

Traditional bank loans rose last month to about 62 per cent of total social financing, the mainland's broadest measure of credit, from 55 per cent at the end of last year. The shadow banking share dropped to about 20 per cent from a peak of almost 30 per cent last year.

"In other words, it's the formal, regulated banking sector that has substituted for the shadow sector as the controls introduced on that sector have begun to have an effect," said Michael Taylor, chief credit officer at Moody's, pointing to several regulations issued earlier this year meant to control off-balance-sheet lending.

While a slowdown in certain shadow banking areas was positive news for the mainland economy, absolute growth in risky products has remained strong.

The entire shadow banking spectrum, which includes wealth-management products, trusts and several other forms of loosely regulated non-bank lending, was worth 37.7 trillion yuan (HK$47.5 trillion) at the end of last year, or 66 per cent of mainland gross domestic product, Moody's data showed, up from 52 per cent at the end of 2012.