bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Reuters

Excessive credit growth in China is signalling an increasing risk of a banking crisis in the next three years, a report from the Bank for International Settlements (BIS) says.
An early warning of financial overheating – the credit-to-GDP gap – hit 30.1 in China in the first quarter of this year, the financial watchdog said in a review of international banking and financial markets published on Sunday.
Lend at least 450 billion yuan, banks told by China province as slowdown deepens
Any level above 10 signals a crisis occurring “in any of the three years ahead,” the BIS said. China’s indicator is way above the second-highest level of 12.1 for Canada and the highest of all the countries assessed by the BIS.
Debt has played a key role in shoring up China’s economic growth following the global financial crisis. Outstanding debt reached 255 per cent of GDP in 2015, fuelled in large part by a surge in corporate borrowing, up from 220 per cent just two years earlier.
China is ready for any banking crisis that may come
China’s bank lending in August more than doubled from the previous month, with much of the gain down to strong mortgage demand.
China’s top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis.
The credit-to-GDP gap takes into account the current credit-to-GDP and expected long-run trends. But a China strategist at an international hedge fund said international historical experience is not necessarily applicable to China. The strategist could not be named as he is not authorised to speak to the media.
All signs point to an economic slowdown in China, but warnings of a credit crisis are too simplistic
The BIS also said the estimated debt service ratio – which measures principal and interest payments relative to income – is at 5.4, which is a “potential concern”.
This underlines the default risk as borrowers struggle to repay loans. Some analysts argue a weakening in banks’ capital strength raises the prospect that the government may have to inject more than US$100 billion to shore them up.
Despite the concerns surrounding China’s debt, UBS analysts said in a report earlier this year that they do not expect an imminent banking crisis.
A high domestic savings rate, underdeveloped capital markets, a relatively closed capital account and government ownership of banks and many large borrowers mean no one can easily “pull the plug” on its credit cycle, they said.
Debt-to-GDP could reach 300 per cent before 2020, UBS said.


Increasing risk of banking crisis for China: international watchdog

Residential buildings in Shenzhen, China. China’s top banks are lending more to homebuyers and developers than at any time since the global financial crisis. Photo: Bloomberg

News

China

Economy

China Economy

Early warning indicator highest of all countries assessed by Bank for International Settlements
