CHINA'S shadow banking will not shake the country's financial stability within the next 12 to 18 months, though its rapid growth poses key risks to the domestic banking system, Moody's said yesterday.

"I don't think shadow banking poses an immediate systemic risk to Chinese banking," said Hu Bin, senior financial analyst at Moody's. "What concerns us is its strong growth momentum."

Moody's estimated broad shadow banking grew 67 percent over the past two years to 29 trillion yuan (US$4.74 trillion) by the end of 2012, as credit conditions in the formal banking sector became tighter while banks sought to circumvent regulations on deposit and loan pricing as well as capital requirements.

Much of the funds provided through shadow banking went to finance infrastructure projects backed by local governments as well as industries bogged down in overcapacity.

One wealth management product sold through Huaxia Bank's sales agents defaulted last year, sparking market jitters and a backlash from regulators.

Hu said China should expect similar incidents this year and next year. "This will undermine confidence in certain products, but overall, I don't think it will invoke a great deal into formal banking system," Hu added.

Moody's said earlier this month it is doubtful of Chinese banks' ability to isolate themselves from a sharp rise in defaults in shadow banking.