Across The Border | Belt and Road projects offer huge opportunities, but also present sources of risk for Chinese banks
Poor commercial prospects of lending in key countries along the trade routes could pose a serious threat to banks and creditor countries
China’s flagship “One Belt, One Road” initiative could be creating new asset quality dangers for the country’s financial system, Fitch Ratings has warned in a new study, adding there were also risks for the countries along the planned routes involved in the economic development project.
The Belt and Road involves hard and soft infrastructure investment in more than 60 countries in central and south East Asia, Africa and Europe, with the simple intention of boosting trade.
Funding for the project is coming from regional financial institutions such as the Asian Infrastructure Investment Bank, China’s Silk Road Fund, as well as Chinese policy and commercial banks.
According to Fitch’s estimates, total overseas lending (not just limited to Belt and Road-related projects) by Chinese banks in the first half of 2016 was worth almost US$1,200 billion, two thirds of which were provided by commercial banks.
But even for the Chinese banks with vast balance sheets, the ratings agency warns the potential risk defaults on Belt and Road loans is high.
