China “shadow banking” growing fast, having risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy

May 13, 2013 Leave a comment

China “shadow banking” growing fast

POSTED: 13 May 2013 7:36 PM

AFP/fl
China’s shadow banking activities have risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy.

BEIJING: China’s shadow banking activities have risen nearly 70 per cent over the past two years and now total more than half the size of the world’s second-largest economy, ratings agency Moody’s said on Monday. Shadow banking includes private lending, off-balance-sheet vehicles and trusts, and allows borrowers to circumvent banks’ formal underwriting standards, as well as official regulation. Such lending has surged 67 per cent since the end of 2010, Moody’s said in a report, reaching an estimated total of 29 trillion yuan (US$4.7 trillion) at the end of last year, or 55 per cent of China’s GDP. The rapid growth was partly due to some borrowers having difficulties obtaining regular bank loans, according to the report, and threatened the health of the banking system and the overall economy. “Shadow banking may encourage excessive financial leverage in the broad economy and add to credit bubble concerns,” Moody’s said. “Given the substantial scale and growth of shadow banking activities in China, we are doubtful of the banks’ ability to isolate themselves from a significant increase in defaults in the shadow banking domain.” China’s banking regulator has sought to rein in non-transparent lending activities and in March ordered banks to step up checks on wealth management products as part of a bid to boost risk control and openness. But Moody’s said: “The impact from shadow banking on banks will depend on the amount and timing of losses and how they are allocated, variables that are difficult to assess at this point, given the lack of transparency and fast-evolving nature of shadow banking in China.”

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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