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Tuesday, October 11, 2016 8:03:20 PM
China banks may need $1.7 trillion injection as credit quality worsens
Rising debt levels will worsen the credit profiles of China's top 200 companies this year, requiring the country's banks to raise as much as $1.7 trillion in capital to cover a likely surge in bad loans, S&P Global said in reports on Tuesday.
The study sees little scope for improvement in 2017 amid worsening leverage and excess capacity in almost all sectors.
Debt has emerged as one of China's biggest challenges, with the country's debt load rising to 250 percent of gross domestic product (GDP). Excessive credit growth is signalling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently.
Seventy percent of the companies in the S&P survey were state owned, and they accounted for $2.8 trillion or 90 percent of the total respondents' debt.
S&P estimated the problem credit ratio at Chinese banks was already at 5.6 percent at end-2015. In a downside scenario of unabated credit growth, that could worsen to 11-17 percent.
In such a situation, banks would need as much as $1.7 trillion in recapitalisation by 2020, S&P estimated. Even under a base case scenario, they would require $500 billion.
That compares with China's last big bank debt cleanup some two decades ago, when an estimated 4 trillion yuan ($600 billion) was spent on restructuring as of late 2005, according to a report for French economics thinktank CEPII.
S&P expects Beijing will continue to allow rapid credit growth over the next 12-18 months before attempting to rein it in, implying risks would heighten in one to two years.
The IMF has warned China its credit growth is unsustainable, with companies sitting on $18 trillion in debt, equivalent to about 169 percent of GDP.
Chinese banks' non-performing loans are already at nearly 2 percent, the highest since the global financial crisis in 2009, according to the China Banking Regulatory Commission (CBRC).
But some analysts believe the ratio could be as high as between 15 and 35 percent, as many banks are slow to recognise problem loans or park them off balance sheet, and as lenders come under political pressure from local governments to roll over bad loans to prevent job losses and defaults.
http://finance.yahoo.com/news/china-banks-may-1-7-094408522.html
Rising debt levels will worsen the credit profiles of China's top 200 companies this year, requiring the country's banks to raise as much as $1.7 trillion in capital to cover a likely surge in bad loans, S&P Global said in reports on Tuesday.
The study sees little scope for improvement in 2017 amid worsening leverage and excess capacity in almost all sectors.
Debt has emerged as one of China's biggest challenges, with the country's debt load rising to 250 percent of gross domestic product (GDP). Excessive credit growth is signalling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently.
Seventy percent of the companies in the S&P survey were state owned, and they accounted for $2.8 trillion or 90 percent of the total respondents' debt.
S&P estimated the problem credit ratio at Chinese banks was already at 5.6 percent at end-2015. In a downside scenario of unabated credit growth, that could worsen to 11-17 percent.
In such a situation, banks would need as much as $1.7 trillion in recapitalisation by 2020, S&P estimated. Even under a base case scenario, they would require $500 billion.
That compares with China's last big bank debt cleanup some two decades ago, when an estimated 4 trillion yuan ($600 billion) was spent on restructuring as of late 2005, according to a report for French economics thinktank CEPII.
S&P expects Beijing will continue to allow rapid credit growth over the next 12-18 months before attempting to rein it in, implying risks would heighten in one to two years.
The IMF has warned China its credit growth is unsustainable, with companies sitting on $18 trillion in debt, equivalent to about 169 percent of GDP.
Chinese banks' non-performing loans are already at nearly 2 percent, the highest since the global financial crisis in 2009, according to the China Banking Regulatory Commission (CBRC).
But some analysts believe the ratio could be as high as between 15 and 35 percent, as many banks are slow to recognise problem loans or park them off balance sheet, and as lenders come under political pressure from local governments to roll over bad loans to prevent job losses and defaults.
http://finance.yahoo.com/news/china-banks-may-1-7-094408522.html
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