Caixin
Dec 08, 2017 08:37 PM
FINANCE

China’s Trust Industry Grows More Quickly Despite Shadow-Banking Curbs

In the three months ended Sept. 30, assets managed by trusts in China grew 5.49% from the previous quarter to 24.41 trillion yuan ($3.69 trillion), the China Trustee Association said Friday. Photo: Visual China
In the three months ended Sept. 30, assets managed by trusts in China grew 5.49% from the previous quarter to 24.41 trillion yuan ($3.69 trillion), the China Trustee Association said Friday. Photo: Visual China

The off-balance-sheet activities of trust companies showed no signs of subsiding in the third quarter, despite China’s regulatory curbs on shadow banking.

In the three months ended Sept. 30, assets managed by trusts in China grew 5.49% from the previous quarter to 24.41 trillion yuan ($3.69 trillion), China Trustee Association said in a report Friday. The trust industry grew more quickly from the second quarter’s 5.33% expansion, but was still shy of a much stronger growth of 8.65% in the first quarter, it said.

About 90% of the growth in the third quarter came from the so-called channelling business, the self-regulatory association added. Banks, companies and high-net-worth individuals invest customers’ deposits or their own cash in high-yield products via “channels” — which are usually nonbank vehicles such as trusts — to achieve higher returns. About 55.66% of funds managed by trusts in China were used as channels in the third quarter, up from 53.92% in the second quarter, the association said.

As the channeling business in China grew rapidly in recent years, curbing the risks outside the formal banking system is one of the country’s goals in controlling financial risk. Last month, financial regulators released draft regulations for the country’s $15 trillion asset management industry to rein in financial risk and curtail the rampant growth of shadow banking. Still, as some analysts added, shadow banking activities are bound to stay relatively resilient as liquidity in the formal banking system has been tight.

The self-regulatory industry body also said the quality of assets under management improved in the third quarter. The ratio of nonperforming assets dropped to 0.57% from 0.6% in the second quarter, the association said.

The trust industry also continued to be profitable. In the third quarter, the industry raked in revenues of 25.9 billion yuan and profits of 18.9 billion yuan, respective increases of 10.3% and 5.34% from the same period a year earlier.

Trusts have grown in popularity as tighter restrictions on other forms of off-balance-sheet financing were tightened over the past year.

“Trust companies cannot depend on regulatory arbitrage for growth, and must look to improving their specialized investing and fund management capabilities,” said He Jinyu, a researcher at the China Trustee Association.

Specifically, the latest draft rules on the asset management industry, set to be fully implemented in mid-2019 after a consultation period, require financial institutions to end the practice of guaranteeing the principal and interest for investors. The rules also cover standard leverage ratios, risk reserve funds, investment restrictions and other requirements for asset management products issued by all financial institutions.

Contact reporter Liu Xiao (liuxiao@caixin.com)

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