Default Alarm Rings as Trust Loans Jump Sevenfold: China Credit
By Andrea Wong & Kyoungwha Kim - Jan 16, 2013 10:55 PM ET ..
A seven-fold jump in last month’s lending by China’s trust companies is setting off alarm bells for regulators to guard against the risk of default.
So-called trust loans rose 679 percent to 264 billion yuan ($42 billion) from a year earlier, central bank data showed on Jan. 15. That accounted for 16 percent of aggregate financing, which includes bond and stock sales. The amount of loans in China due to mature within 12 months doubled in four years to 24.8 trillion yuan, equivalent to more than half of gross domestic product in 2011, and the People’s Bank of China has set itself a new goal of limiting risks in the financial system.
“Short-term financing instruments such as trust loans have been rising really quickly,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “Quite a number of companies resort to trust loans when they face financing troubles. A breakdown in this financing chain will eventually lead to a default on debt this year.”
The growth in trust loans that are typically extended to higher-risk companies such as property developers or local- government investment vehicles pose a threat to banks selling wealth-management products that include such assets should insolvencies ripple through the economy, the International Monetary Fund said in October. Beijing-based Huaxia Bank Co. (600015) said last month that it will negotiate repayment with investors who lost money following the default of a trust savings product.
more@Bloomberg.com
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