* Yr-on-yr growth in trust assets slows to 46 pct in Q4
* Regulators want to contain risk from shadow banking
* Growth down from 70 percent in Q2
* Effect of higher money market rates, regulation
By Gabriel Wildau
SHANGHAI, Feb 13 China's trust sector grew at a
slower pace in the final months of last year, suggesting that
official efforts to curb growth in risky shadow-bank lending may
be having some impact.
Assets under management at Chinese trust firms rose to 10.9
trillion yuan ($1.8 trillion) at end-December, the China Trustee
Association said on Thursday. That's year-on-year growth of 46
percent, a slowdown from 71 percent and 60 percent growth in the
second and third quarters, respectively.
But it's still swift growth by most standards, highlighting
the challenge facing regulators who want to tame the risk from
off-balance loans, which often flow to weak borrowers shut out
from traditional bank loans. By comparison,
domestic bank loans in China rose by only 14 percent last year.
State media reported on Wednesday that products worth $126
million issued by Jilin Province Trust Co Ltd, and linked to a
loan to a deeply indebted coal firm, failed to repay investors
when they matured in recent weeks. That followed
a near-default on a similar product from China Credit Trust Co
Ltd last month.
"The frequent occurrence of individual risk incidents (in
2013) has provoked worries about systemic risk in the trust
industry," Zhou Xiaoming, expert director at the trustee
association, wrote in a commentary to the data release.
Chinese trust firms are asset managers that sell
high-yielding financial products to wealthy households and
firms, investing the proceeds in a range of assets, including
loans, private equity and listed securities. Trusts overtook
insurance companies last year to become the largest holder of
financial assets behind commercial banks.
Trust firms comprise the largest segment of China's shadow
banking sector and often partner banks to sell so-called wealth
management products to wealthy individuals and firms. Jilin
Trust's products were marketed through China's second-largest
lender, China Construction Bank .
Loans officially comprise only 47 percent of total trust
assets, but if other loan-like structures are included, the
ratio rises to 67 percent, Zhou wrote.
Policymakers have taken a series of steps in recent months
to combat the risk from trust loans and other forms of shadow
The central bank has guided interest rates in China's money
markets steadily higher since mid-2013, in a move that bankers
say was aimed at slowing off-balance sheet lending. Banks and
trust companies often rely on short-term borrowing from money
markets to fund cash payouts on maturing products, even when the
underlying loan or other asset has not yet matured.
Short-term cash rates spiked to historic highs in late June
and rose sharply again in December, as the central bank declined
to inject extra funds into the system to ease a cash crunch
caused in part by a wave of maturing wealth products.
The benchmark 7-day bond repurchase rate has averaged 4.52
percent in the fourth quarter compared to 4.01 percent in the
third quarter. It has averaged 4.85 percent so far in 2014.
In addition, regulators have issued a series of rules aimed
at clamping down on risky off-balance-sheet lending. Last month,
China's cabinet issued new policy guidelines that called on
trust firms to return to their traditional role as asset
managers rather than lenders.
China's bank regulator has been considering new rules that
could limit banks' ability to work with trust companies to shift
bank loans off bank balance sheets and into trust products.
($1 = 6.0624 Chinese yuan)
(Editing by Ian Geoghegan)