Tighter credit scrutiny to slowdown shadow-banking

Chinese banks will likely see a slowdown in shadow banking activity this year amid tightening credit scrutiny, a report by S&P Global Ratings showed on Wednesday.

The agency predicted growth in China's overall nonfinancial and nonpublic credit will slow to 12 percent this year, down from an estimated 15.2 percent in 2017.

In the meantime, banks will likely increase traditional loans to meet corporate refinancing needs.

The agency predicted bank loans are expected to grow by 13 percent to 15 percent this year compared to 2017.

"China's concerted regulatory tightening on multiple fronts could force a decline in shadow banking activity and weigh on the country's overall credit expansion in 2018," said Liao Qiang, an analyst with the rating agency.

The governments' efforts to rein in financial risks, such as tightening money conditions and escalated regulatory restrictions on short-term wholesale funding and wealth management products, have forced banks to bring related assets onto balance sheet, eroding capitalization levels and the capacity for credit creation.

"A backdrop of continued strong GDP growth should help Chinese banks make regulatory adjustments, and underpin asset quality fundamentals despite a likely deterioration in reported metrics," the analyst said.

Meanwhile, the agency expected a slight rise in nonperforming loans.

Segments most vulnerable to rising credit risks include local government financing vehicles and the softening property market, said the agency.

If tightening conditions led to a liquidity shock, the government would expect a rapid policy response, the agency added.