China banks face "serious" default risk: report

[GoFlyKiteNow]

China banks face "serious" default risk: report
Posted: 27 July 2010 1615 hrs

SHANGHAI : Nearly a quarter of the 7.66 trillion yuan (1.1 trillion US dollars) that Chinese banks lent to local governments is "at serious risk of default", a report said.

Chinese banks lent huge amounts of money to provincial financing vehicles for construction projects after Beijing called for nationwide efforts to spur the economy.

But now only 27 percent of projects financed by the loans are generating adequate cash flow for repayment, the Century Weekly said in its latest issue, citing the China Banking Regulatory Commission.

And 23 percent of the loans -- or about 1.76 trillion yuan -- face serious default risks, said the report.

The banking regulators, along with the banks that have the biggest exposure, will carry out detailed discussions with local governments starting in September about how to recoup the loans, the report said.

A spokeswoman at the banking regulator, which was also cited in a report on the issue by the Financial Times newspaper, declined to comment on the report when contacted by AFP.

China has powered out of the global crisis on the back of a stimulus package worth four trillion yuan and the state-backed bank lending, which saw new loans nearly double from the previous year to 9.6 trillion yuan in 2009.

The lending spree raised concerns in Beijing over a possible new crop of bad loans that could threaten the world's third-largest economy.

The State Council, or Cabinet, warned earlier this year about the risks of lending to financing vehicles set up by local authorities to fund new roads, bridges and other projects.

Lending to such entities represented about 18 to 20 percent of total loans in the banking system, rating agency Standard & Poor's said last week.

"It's highly likely that some of these loans will turn bad over the next few years, given the questionable credit quality of many of the borrowers," said Liao Qiang, a Beijing-based analyst at Standard & Poor's.

The roughly 1.76 trillion yuan at risk of default would be nearly four times the amount of all non-performing loans in Chinese banks as of the end of June, according to figures released by the bank regulator.

- AFP/ir

 

[GoFlyKiteNow]

US$ 261 Billion China bank loans in doubt
Published July 27, 2010

This is part of 7.7t yuan lent to finance local government infrastructure works

(SHANGHAI) Chinese banks may struggle to recoup about 23 per cent of the 7.7 trillion yuan (S$1.55 trillion) that they've lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation's regulator.

About half of all loans need to be serviced by secondary sources including guarantors because the ventures can't generate sufficient revenue, the person said, declining to be identified because the information is confidential.

The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.

The estimate implies that US$261 billion of debt may go sour, almost five times the US$53.5 billion that the nation's five largest banks are raising to replenish capital. China's banks advanced a record US$1.4 trillion of credit last year to support the economy, raising concern that bad loans will surge and force the government to add to the more than US$650 billion spent to clean up the banking industry since 1999.

 

[zuoom]

so, what would happen even if the 23% of the loans goes bad?

 

[longbow]

Lets see - quarter of US$1 Trillion is about US$250B. US$250B to Beijing is Peanuts. Remember that they injected close to $600B in stimulus money a few years back.

Think Beijing is fully aware of situation and it is no surprise as they try and deflate the bubble. Beijing started planning for slower growth by getting their bank reserves up. Many of their banks have been raising their ratios.

Also, these bad assets can by takeover by Beijing (similair to what Feds did) and flogged off in a few years. All this credit and debt is within their system - there are few foreign creditors. One thing to note about distress property is timing. Most resolution trust companies formed to take over bad assets end up ahead because they have the holding power. With inflation at 5% in 10 years your loan would be half the amount!

Another thing to consider is Beijing's nod to raising wages. The wealth impact and the money flowing through the system because of the higher wages will spur demand for real estate as well as consumer goods.

Contrary to what many thing, mfg are moving deeper into China for cheaper labor. However most still remain in China because of booming market (see increase in wages).

Lets see if S&P cut credit ratings of Chinese banks

In short, is there stress in the system - sure but so are the debt levels of many 1st world countries. China is a creditor nation with relatively low public debt and has a closed system

China banks face "serious" default risk: report
Posted: 27 July 2010 1615 hrs

SHANGHAI : Nearly a quarter of the 7.66 trillion yuan (1.1 trillion US dollars) that Chinese banks lent to local governments is "at serious risk of default", a report said.

Chinese banks lent huge amounts of money to provincial financing vehicles for construction projects after Beijing called for nationwide efforts to spur the economy.

But now only 27 percent of projects financed by the loans are generating adequate cash flow for repayment, the Century Weekly said in its latest issue, citing the China Banking Regulatory Commission.

And 23 percent of the loans -- or about 1.76 trillion yuan -- face serious default risks, said the report.

The banking regulators, along with the banks that have the biggest exposure, will carry out detailed discussions with local governments starting in September about how to recoup the loans, the report said.

A spokeswoman at the banking regulator, which was also cited in a report on the issue by the Financial Times newspaper, declined to comment on the report when contacted by AFP.

China has powered out of the global crisis on the back of a stimulus package worth four trillion yuan and the state-backed bank lending, which saw new loans nearly double from the previous year to 9.6 trillion yuan in 2009.

The lending spree raised concerns in Beijing over a possible new crop of bad loans that could threaten the world's third-largest economy.

The State Council, or Cabinet, warned earlier this year about the risks of lending to financing vehicles set up by local authorities to fund new roads, bridges and other projects.

Lending to such entities represented about 18 to 20 percent of total loans in the banking system, rating agency Standard & Poor's said last week.

"It's highly likely that some of these loans will turn bad over the next few years, given the questionable credit quality of many of the borrowers," said Liao Qiang, a Beijing-based analyst at Standard & Poor's.

The roughly 1.76 trillion yuan at risk of default would be nearly four times the amount of all non-performing loans in Chinese banks as of the end of June, according to figures released by the bank regulator.

- AFP/ir

 

[BlueCat]

it is time,they seriously look at the processes and should tighten it else if they are hit. everyone will be in deep-shit...cos presently they are the driving force of the world economy.

 

[Cestbon]

China have US$1 trillion bond in US. China central will step in to help local goverment .
Not to worry. Only that many that speculate in property will suffer most.

 

[KennyMGM]

China have US$1 trillion bond in US. China central will step in to help local goverment .
Not to worry. Only that many that speculate in property will suffer most.

maybe after all this big stimulus spending, lossess and withdrawals from US bond, china bond reserves may be very less oready.