Moody's: China's shadow banking system continues to grow; leverage increases further

Dhwani Mehta FXStreet

In its latest report on the Chinese shadow banking system, the US rating agency, Moody's Investors Service noted that overall leverage in China's (Aa3 negative) economy continues to rise, as credit growth -- measured by total social financing (TSF) -- outpaces nominal GDP.

Key Quotes:

"The growth in overall leverage may be understated, because some of the fastest growing components of shadow banking are not included in TSF"

"We estimate the potential understatement to be significant, amounting to at least RMB16 trillion or 23% of GDP at end-2015, equivalent to around one-third of shadow banking"

"The rise in overall leverage and further expansion of shadow banking activity are pushing up financial risks"

"Continued growth of banks' investment receivables is increasing the system's interconnectedness, as well as exposing mid-sized and smaller regional banks to liquidity and credit risks"

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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