June 6, 2018 / 4:44 AM / 4 months ago

China makes further progress in risk crackdown as trust firms' assets fall

BEIJING (Reuters) - Regulators in China are making further progress in reducing risks to the financial system, according to fresh figures on Wednesday that showed a drop in assets in the trust industry, which is often linked with shadow banking.

Outstanding total assets in China’s trust industry fell 3.18 percent from the start of 2018, the banking and insurance regulator said, as it vowed to continue its clampdown on what it said was “market chaos” in the sector.

Banks and other financiers often lend via trust firms to risky borrowers they would otherwise be prevented from lending to - such as property developers - by regulators.

Using trust firms as a conduit allows lenders to bypass protective buffers put in place to reduce lending risks, and makes it harder for regulators to gauge their exposure.

At end-April, outstanding assets in China’s trust industry totaled 25.41 trillion yuan ($3.97 trillion).

The regulator said it will continue to tighten scrutiny of trust firms in line with new rules on the asset management industry.

The regulator said that through on-site inspections, policy guidance and ratings, it urges “trust companies to transform from high-speed growth to high-quality development and to vigorously support the development of the real economy.”

The use of multi-layered structures designed to conceal the identities of the ultimate lender and borrower has been “significantly” reduced, it added.

The total number of loans to provincial government platforms and the financial industry fell 155.3 billion yuan from the beginning of the year.

Trust loans dropped by 11.11 billion yuan since the beginning of the year to 8.39 trillion yuan at end-April.

While risky loans fell, the regulator said it had little impact on trust firms’ revenue which grew compared to the year before. Profitability was stable, it said.

Chinese authorities are in the third year of a campaign to reduce riskier financing practices and slow a rapid build-up in debt, but have been proceeding cautiously to avoid a hit to economic growth.

On Friday, regulators issued draft guidelines on banks’ management of syndicated loans to contain credit risks.

Also last week, China’s securities association asked brokerages not to provide finance based on over-the-counter (OTC) stock pledges, according to two people with direct knowledge of the matter.

Reporting by Beijing Monitoring Desk, Shu Zhang in Beijing; Writing by Engen Tham in Shanghai; Editing by Kim Coghill

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