The broad downward trend in China's shadow banking activities continued though the country supported its economic recovery from the pandemic, said Moody's Investors Service recently.
Overall shadow banking assets grew by RMB700 billion in the first quarters of 2020 according to estimates of Moody’s, following a RMB2.3 trillion drop in 2019 due to the government's ongoing efforts to defuse financial system risks, said Lillian Li, a Moody's Vice President.
"That said, over the same period, shadow bank assets were broadly flat as a share of nominal GDP, reflecting China's rapid economic rebound from the coronavirus pandemic," Li noted.
The RMB700 billion increase was mainly driven by asset managers and undiscounted bankers' acceptances, reflecting the authorities' decision to delay tightening in asset management rules to support the economy — a move that should be short-lived, Moody’s pointed out.
In addition, other core shadow banking activities in China, including trust loans and entrusted loans continued to shrink, according to the credit rating agency.
The interconnectedness between banks and non-bank financial institutions also decreased, with commercial banks' net claims on non-bank financial institutions (NBFIs) declining to its lowest level since 2016 at the end of Q3 2020, the firm said.
Meanwhile, Chinese regulators have pledged to better monitor the lending activities of technology giants and small lenders backed by local governments.
A new online lending regulation – which requires small and medium-sized enterprises (SMEs) to meet certain leverage and business scope parameters to be eligible for loans – will further constrain the growth of microloans, and in turn preempt new systematic risk, especially from informal lending by fintech giants.
The China Banking and Insurance Regulatory Commission's (CBIRC) new estimate puts China's total shadow banking assets at RMB84.8 trillion at the end of 2019, substantially higher than RMB59.0 trillion under Moody's definition as a result of definitional and coverage differences.
Nonetheless, the CBIRC's assessment that such assets had fallen some 16% from their peak of RMB100.4 trillion in 2017 broadly aligns with Moody's estimates, the firm noted.
