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JP Morgan: China’s Shadow Banking Totals 36Tln, 69% of GDP at End of 2012

05-09 14:57 Caijing
The total size of shadow banking which is about 69% of GDP or 27% of bank assets by the end of 2012, is still relatively small when compared with the size of the economy and the banking system, said JP Morgan.

China’s shadow banking totaled 36trillion yuan by the end of 2012, nearly doubling in the past two years, underscoring increasing systematic risks exposed to the financial system, said JP Morgan in a latest report.
 
The total size of shadow banking which is about 69% of GDP or 27% of bank assets by the end of 2012, is still relatively small when compared with the size of the economy and the banking system, said JP Morgan.

In late 2011, shadow banking in G-20 economies totaled about $67 trillion, or about 111% of GDP, The Financial Stability Board (FSB) estimated.

However, JP Morgan warned that China’s rapid growth in shadow banking is worthy of attention.

Based on estimates of the investment bank, shadow banking in China was about 18.3 trillion yuan in 2010, or equivalently 46% of GDP or 19% of bank assets, before it rose by 97% two years later.

JP Morgan noted that not all non-bank credit intermediation will necessarily generate systemic risks and the concern about potential risks arising from shadow banking at this moment is mainly related to trust loans and wealth management products, which represented, respectively, 14.4% and 13.7% of GDP at the end of 2012.

Shadow banking in the report which uses broad definition refers to all non-bank credit intermediation including trust, wealth management products, entrust loans and bank acceptances etc.

Assets under management (AUM) of trust companies in the country rose rapidly in the past two to three years, from 3.04 trillion yuan by end of 2010 to 7.47 trillion yuan by end of 2012, of which about 41% were trust loans.

Wealth management products (WMPs) emerged in China as a way to bypass regulation on maximum deposit rates and the size of WMPs rose from 1.7 trillion yuan in 2009 to 7.1 trillion yuan in 2012, about 7.7% of total deposits in the banking system.

The China Banking Regulatory Commission (CBRC), the country’s banking regulator, issued guidelines tightening regulation on non-standard credit products by WMPs in late March and recently stepped up its monitoring effort on inter-bank exposures.

The report predicted the Chinese authorities will continue to be supportive of the development of shadow banking, but will selectively tighten regulation on certain business activities.

“Shadow banking will likely continue [to] grow, but at a slower pace,” said JP Morgan in the report.

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