BEIJING--China's shadow banking sector had an estimated 31.2
trillion yuan ($5.03 trillion) in assets outstanding at the end of
2013, and bad loans amounted to 4.4% of the total, consulting firm
Oliver Wyman said.
But the consulting firm said the bad loan total outside the
conventional banking sector was manageable as it is unlikely to
pose a systemic risk to the financial system.
"The shadow banking sector [in China] has grown fast and risks
are rising," said Christian Edelman, head of corporate and
institutional banking and wealth management practices at Oliver
Wyman, a unit of Marsh & McLennan Cos. "But many doomsday
scenarios you hear these days are overplayed."
China's shadow banking sector--a mixture of traditional banks'
off-book lending arms, trust companies and other informal
lenders--raised concerns about whether slowing economic growth
would trigger a debt crisis.
Economists worry that shadow lenders are introducing risks
reminiscent of the U.S. subprime mortgage boom by funding projects
that may never pay off, often by failing to disclose fully what
they are asking investors to fund.
Oliver Wyman calculated the size of the shadow banking sector
after eliminating possible double counting and funds not used as
credits in the financial system. China's shadow banking sector is
equivalent to about 50% of the nation's gross domestic product,
which is comparatively low based on global standards, Mr. Edelman
said.
As a large chunk of shadow banking business is intertwined with
the banking business, about 22% to 44% of current bad loans from
the shadow banking sector could end up on the books of the
traditional banking sector, though that would add a manageable 4.3
percentage points to the overall bank nonperforming loan ratio,
according to Oliver Wyman.
At the end of last year, the nonperforming loan ratio of China's
commercial banks was 1.29%, much lower when compared with many
advanced economies.
The bad loan ratio for China's shadow banking sector could rise
to 10% if economic growth slips to 7% or lower, the consulting firm
said.
The nation's property slump will also add to risks in the
financial sector, but generally those risks are controllable, said
Mr. Edelman.
Oliver Wyman estimated that China's mortgage indebtedness
accounts for less than 10% of the value of household ownership of
real estate.
"Even if the property market were to go down some 20%, ...which
would be an extreme scenario, it wouldn't lead to a full-blown
mortgage crisis as you've seen in other markets," Mr. Edelman
said.
Write to Grace Zhu at Grace.Zhu@dowjones.com
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