High-profile defaults highlight risk in China’s shadow-banking sector amid asset deterioration
- Moody’s estimates that more than 280 billion yuan of trust assets, 1.26 per cent of the sector’s total, faced ‘default and repayment risks as of March
A slew of high-profile defaults in China’s shadow-banking sector has highlighted the acute deterioration of assets in the US$9 trillion market, analysts said.
Noah Holdings, one of China’s largest wealth and asset managers, revealed last week that 3.4 billion yuan (US$500 million) of investment in Camsing International is in danger of default, after Camsing’s controller Lo Ching was arrested by police for suspected fraud.
In early June, Anxin Trust disclosed that it had missed payments of 11.8 billion yuan from 25 trust products, after giving loans to an acquisitive property developer that has since been delisted from a Chinese bourse.
The two cases represent only a snapshot of the problematic lending in the sector. Unlike Noah, a US-listed firm, and Anxin Trust, the only independently-listed trust in China, most trust companies and private asset managers in China don’t have disclosure duties.
That means defaults can go unnoticed, or occasionally reported by media tipped off by investors that suffer losses.
“When the economy is on the upward cycle people care less about the underlying asset quality, which usually yields much more than bank savings. But when the economy slows and funding becomes more selective, previously hidden problems surface,” said Rowena Chang , associate director of financial institutions at Fitch Ratings.
The interbank lending rate has signalled a recent increase in risk aversion among Chinese investors as the default warnings have pointed to a deterioration in assets.
China’s seven-day repo market has become a more expensive place for non-bank financial institutions with weaker credit profiles to borrow, with the gap between the highest and lowest rates surging to nearly 30 percentage points last week, according to Wind Info. Previously the gap was just a few percentage points, when funds were flowing to all borrowers indiscriminately.
