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ANZ weighs in on shadow loans

By Wang Fei’er (Global Times)

10:16, December 06, 2012

There could be between 15 trillion yuan ($2.41 trillion) and 17 trillion yuan in off-balance-sheet loans, or shadow loans, currently circulating in China, a figure which represents roughly 12 to 13 percent of all domestic banking assets, according to a report released Tuesday by ANZ China.

Although banking and finance experts have yet to reach a consensus on how to identify shadow lending institutions, the phenomenon in China has primarily taken the form of private lending operators, trust enterprises and wealth management product (WMP) sellers, Zhou Hao, an analyst from ANZ, told the Global Times.

According to Zhang Monan, an economic researcher with the State Information Center, China's shadow banking institutions operate like other banks: they raise capital through the sale of investment products and then lend this money to borrowers.

"Initially, this helped ease some of the credit pressures within the market, but without oversight these loans could threaten the stability of the sector," said Zhang.

As regulators put the brakes on bank credit amid rising concerns about the proliferation of non-performing loans at commercial lenders, many fund seekers have moved to borrow money from shadow banking institutions which operate off the regulatory radar and are not subject to the country's credit restrictions. These circumstances have created the perfect conditions in which underground lending can thrive, explained Zhou.

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