China curbs off-balance sheet trust lending

Updated: 2010-07-05 14:36
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China's banking regulator has ordered trust companies to halt the launch of wealth-management products via banks, three sources familiar with the matter told Reuters on Monday.

Trust company products have been an increasingly popular way for banks facing credit quota restrictions to take loans off their balance sheets.

The ban will close off another funding channel for many investment projects, especially in the property and infrastructure sectors.

With Beijing tightening controls on new loans, the outstanding value of trust products has jumped to more than 2 trillion yuan ($295.4 billion) from 600 billion yuan at the end of September as banks turned to trusts to keep money flowing into investment projects, the sources said.

"China's banking regulator is worried that these products may be used as tools by commercial banks to skirt overall credit controls," a source with a commercial bank said.

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The China Banking Regulatory Commission (CBRC) urged trust firms to rein in their expansion at a meeting on June 1, the source said.

Trust firms, however, responded by rushing out even more products, prompting the CBRC last Friday to issue its ban, a trust investment firm source said.

According to statistics from Use-Trust, a consulting firm specializing in the trust industry, 413 new bank-trust products came onto the market in May alone totaling 614.9 billion yuan.

By comparison, new yuan bank lending in May came to 639.4 billion yuan.

The CBRC declined to comment.