Fitch: China banks' entrusted investments fuelling credit growth

The US-based ratings agency, Fitch Ratings, came out with a latest report on the Chinese banks’ entrusted investments, highlighting the following:

Aggressive growth in bank exposure to non-bank financial institutions (NBFIs) - securities firms, trust companies and asset-management companies - has been a major factor propelling China's credit growth since 2015

We believe most banks' risks to NBFIs represent their exposure to investments in asset- or wealth-management products managed by NBFIs, called "entrusted investments". 

Excess growth in this area has the potential to increase systemic risks. Such exposure had grown to an average of around 19% of Fitch-rated mid-tier banks' assets by end-2016, compared with around 1% for state banks

Rapid growth in entrusted investments will reduce banks' loss-absorption buffers, unless additional capital is raised or profitability is boosted. 

Fitch believes it is difficult for regulators to clamp down on the growth in entrusted investments as their scale has grown to become an important part of financial intermediation.