Chinese banks are engaging in obscure transactions to shift loans off their balance sheets as they come under increasing pressure from the government to increase provisions for bad debts, the Wall Street Journal reported. According to analysts who have discussed the practice with bank officials, banks sell loans to trust companies with an agreement to repurchase them at a later date, and the trust companies repackage the loans into financial products for clients. While the trusts hold the loans, banks typically don’t count them on their books. Shanghai Benefit Investment Consulting, a research firm, estimates that US$88.31 billion in bank loans have been packaged into trust products so far this year. Transactions spiked in November, reaching US$23.43 billion – over half the total US$43.17 billion lent out by domestic banks. It is unclear which banks have been most active. The practice has raised questions about transparency, with some analysts suggesting that official data might be understating credit growth this year.
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