Off-balance Sheet Business Equal to 109.16% of Balance Sheet Assets at Chinese Banks


The latest annual report released by the China Banking Association (中国银行业协会) has triggered concerns about the scope of the country’s shadow banking sector, with the revelation that the off-balance sheet business of Chinese banks dwarf those recorded on their balance sheets.

According to CBA’s latest “China Financial Stability Report (2017)” (中国金融稳定报告(2017)) “the banking sector financial institution off-balance sheet business balance is 253.52 trillion yuan, equal to 109.16% of total on-balance sheet assets.”

The report notes, however, that the recent inclusion of off-balance sheet wealth management business – a stalwart of Chinese shadow banking activity, in macro-prudential assessments will help regulators to to control formerly covert credit growth as part of ongoing efforts to deleverage the financial system.

Th report is also sanguine about the ability of the recently issued draft version of the “Commercial Bank Off-balance Sheet Business Risk Administrative Guide” (商业银行表外业务风险管理指引(征求意见稿)) further refines the definition of the off-balance sheet activities of lenders, which will have a major impact on shadow banking operations.

Non-loan assets see robust growth

According to the report 2016 listed-bank non-loan assets saw year-on-year growth of 16.41% in 2016, comprising 36.2% of total assets on average. Small and medium-sized banks saw more rapid growth in non-loan assets compared to large-scale banks, which comprise a higher percentage of their balance sheets.

The report expects the assets of commercial banks to continue growing by 10% a year, with  greater focus on funding for projects associated with Belt and Road Initiative, the development of the  Beijing-Tianjin-Hebei conurbation and the Yangtze River region.

Non-performing loan ratio set to hold steady

The report sees the non-performing loans ratio of banks holding steady in 2017-2018, given easing growth and greater experience amongst lender in their dispel via methods such as debt-to-equity swaps.

“The growth of outstanding NPL’s of the listed banks and their NPL ratio has eased in 2016,” said Lian Ping, chief economist of the Bank of Communications and one of the report’s authors. “Some of them even witnessed drops in the NPL ratio.”