July 22, 2017

Growth Slows in China’s Trust Sector

SHANGHAI — The growth of the Chinese trust sector, the largest component of the country’s so-called shadow banking system, slowed markedly in the second quarter after a government clampdown on risky lending.

China’s top leaders have signaled concern over runaway credit growth and the risk of a debt crisis as local governments and companies borrow at high interest rates from nonbank lenders, and especially from trust companies.

In June, the central bank engineered a short-term cash squeeze as a warning to banks and trust companies to scale back risky lending practices.

Data published by the China Trustee Association late Monday showed that the total assets managed by the 67 trust companies in China reached a record-high 9.45 trillion renminbi, or $1.54 trillion, at the end of June.

Although that was up 8.3 percent from the end of the first quarter, growth decelerated sharply from the 16.9 percent increase seen in the first quarter. In 2012, total managed assets grew by 55.3 percent.

Controlling shadow banking is a major element in China’s campaign to shift its economic model away from its heavy reliance on debt-fueled investment.

The China Banking Regulatory Commission and other regulators have issued a slew of new rules to curb banks’ riskier operations.

Trust companies, together with other nonbank financial institutions like brokerage firms, have become a vital source of credit, allowing banks to arrange off-balance-sheet refinancing for maturing loans that riskier borrowers, like local governments, cannot repay from their internal cash flow.

The scale of trust assets still pales in comparison with total banking sector assets of more than 100 trillion renminbi as of the end of June.

Without trust companies, the banking system’s nonperforming loans ratio might be much higher, although accurate estimates are not possible.

Trust companies sell wealth management products to raise funds so they can purchase loans that banks want off their books. Such products are then marketed through bank branches as a higher-yielding alternative to traditional bank deposits.

The Chinese banking regulator recently said that outstanding bank-issued wealth-management products totaled 9.08 trillion renminbi at the end of June.

The new data on trust company assets appear to encompass about 70 percent of that total, as bank wealth-management products usually involve cooperation with a trust company.

The association data also include funds that trust companies raise by selling the products directly to investors, without being partners with banks.

The latest figures match central bank data released last month showing that new trust lending fell sharply in June, after rapid growth in January through May.

Although wealth-management products often include only spotty disclosures about underlying assets, the trust association data offer a view of where the funds are flowing.

About 26.8 percent of outstanding wealth-management funds were invested in infrastructure at the end of June, up from 25.8 percent at the end of March. Real estate accounted for 9.1 percent, down from 9.4 percent in March.

Industrial companies made up 29.4 percent of investments, up from 27.8 percent. Investment in stocks and bonds fell to 10.5 percent from 11.1 percent.

The banking regulator said the system-wide nonperforming loans ratio was 0.96 percent at the end of the first half, up only 0.01 percentage point from the end of last year.

Article source: http://www.nytimes.com/2013/08/07/business/global/growth-slows-in-chinas-trust-sector.html?partner=rss&emc=rss

In Europe, Growing Concern Slovenia Is Next to Need Bailout

The rewards of success included an imposing mountainside retreat and frequent mention of his name as a possible future finance minister of this small, idyllic Alpine country.

Now, though, Mr. Kordez stands convicted of forgery and abuse of office for financial dealings as Merkur struggled under a mountain of debt.

“My mistake and the mistake of the banks was to vastly underestimate the risk,” Mr. Kordez, 56, said in a recent interview at his home near the picturesque town of Bled, with a view of Slovenia’s highest peak. He awaits a decision later this month on an appeal of his conviction, which could send him to prison for five years.

As fears grow that Slovenia could follow Cyprus and become the sixth euro zone country to seek a bailout, his rise and fall have come to symbolize the way easy and cheap credit, combined with Balkan-style crony capitalism and corporate mismanagement, fueled a banking crisis that has unhinged a country previously praised as a regional model of peaceful prosperity.

The recent bailout of Cyprus at a cost of €10 billion, or $13 billion, which included stringent conditions forcing losses on bank depositors, has focused minds in Ljubljana, the Slovenian capital. Slovenia’s struggling banking sector is saddled with about €6.8 billion worth of nonperforming loans, about one-fifth of the national economy. Slovenia is now in recession, and the gloom across the euro zone shows little sign of abating. A European Commission forecast released Friday said that France, Spain, Italy and the Netherlands — four of the five largest euro zone economies — will be in recession through 2013.

Last Thursday, Slovenia bought time by borrowing $3.5 billion on international markets. That was two days after Moody’s Investors Service cut the country’s credit rating to junk status, citing the banking turmoil and a deteriorating national balance sheet. Analysts said the bond sale would probably enable the government of the new prime minister, Alenka Bratusek, to stay afloat at least through the end of the year.

The Cypriot debacle has shown how bailing out even a small country can damage the credibility of the euro currency union. But Slovenia, with two million people, insists that it is not Cyprus and will not seek emergency aid.

“For the time being, I have a sound sleep,” Ms. Bratusek, the 42-year-old prime minister, said in a recent interview.

This week, on Thursday, Ms. Bratusek, only a little more than a month in office, is expected to present a financial turnaround plan to the European Commission, the executive arm of the European Union. She said that privatizing Slovenia’s largely state-owned banking sector was a priority, along with creating a “bad bank” to take over nonperforming loans.

Her government, she said, will also unveil plans by July to sell the country’s second-largest bank, Nova Kreditna Banka Maribor, along with two large state companies that she declined to specify. The sales could raise up to €2 billion, she said.

Ms. Bratusek, who once headed the state budget office at the Finance Ministry, said Slovenia’s government debt, which analysts say rose from about 54 percent of gross domestic product to around 64 percent with last week’s bond sale, still ranked at the lower end of that scale in the euro area.

But the 6 percent interest rate Slovenia offered on the 10-year bonds in last week’s debt sale, at a time when some euro zone countries are enjoying historically low borrowing costs — Germany’s equivalent bond is trading below 1.2 percent — might only add to the country’s financial problems.

Mujtaba Rahman, director of Europe at Eurasia Group, a political risk consulting firm, said the new financing could backfire if it lulled the government into laxity about making vital structural changes.

“The new financing was not a vote of confidence in the Slovenian government or in the economy, but rather reflects investors attracted by high bond yields,” Mr. Rahman said. “A bailout could still prove inevitable.”

What went wrong in Slovenia? The country, wedged between Italy, Austria, Hungary and Croatia, was considered the most promising among the 10 new European Union entrants when it joined in 2004. That was 13 years after it declared independence from Yugoslavia, avoiding a bloody Balkan war that had swept up other countries in the region.

Article source: http://www.nytimes.com/2013/05/06/business/global/06iht-slovenia06.html?partner=rss&emc=rss