China’s trust sector may become the second-biggest part of the country’s financial industry this year, even as signs of credit risk in the investment companies begin to surface, according to a report.

Trust companies managed more than Rmb5tn ($785bn) at the end of the first quarter, fuelling expectations that they will soon surpass insurance companies and be second only to the country’s banks in total asset size, KPMG wrote in a report to be published today. The rise of trusts – their assets increased nearly 60 per cent last year – is a testament to the unique role they play in China, bringing together private banking and asset management operations in a country that otherwise gives wealthy individuals few investment options.

Typically, trusts serve as an intermediary, making loans and repackaging them as debt products for investors. “The growth rate of the sector might eventually be cause for concern,” said Jason Bedford, author of the report. “Because there have been no defaults, there is a perception at times among investors that these are extremely low-risk products.”