BEIJING - Tighter regulations in China have been effective in slowing the growth of core shadow banking activity, said leading rating agency Moody's Monday.

"The growth of core shadow banking activities has fallen below the rate of nominal GDP growth in the past quarter as tighter regulations have encouraged credit flows to move toward the formal banking system," said Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific.

Moody's defines core shadow banking activities as entrusted loans, trust loans, and undiscounted bankers' acceptances.

"The contraction in core shadow banking activity and shift in credit flows back towards the formal banking system improves transparency and lowers financial risks, but could also put pressure on sectors that rely on shadow banking, such as small and unrated property developers and other micro and small enterprises," said Stephen Schwartz, a Moody's Senior Vice President.

Schwartz noted that overall credit flows have held up with support from monetary policy easing.

Non-core components of shadow banking such as umbrella trusts, e-financing, and peer-to-peer lending have been growing at a faster pace, observed Moody's. As such, shifts are taking place in the risk and composition of the broader range of shadow banking activities.

Moody's also said that the share of trust sector assets in the capital market has risen at the expense of loans to more traditional sectors.

Recent stock market volatility has thrust the role of margin finance into the spotlight. Moody's noted that there are multiple channels of margin finance and among them, lending by brokerage firms, has declined sharply with the market selloff.