Smaller Chinese banks have ramped up their shadow lending activity, adding to the financial risks that threaten to trip up the world’s second-biggest economy.
The 2013 results of unlisted banks, published over the past week, reveal that city-based lenders have been among the most aggressive in China in using complex credit structures to evade regulatory controls and issue higher-yielding loans.
These shadow loans have been profitable so long as growth has been strong. But as the economy weakens, they are more vulnerable ordinary loans because they connect banks to riskier borrowers, while giving them minimal capital cushions.
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