Non-performing loans will not be problem in China, its bankers insist
By ANTHONY ROWLEY 15 June 2009
BANK lending in China has already surpassed what was supposed to be the official target for the whole of this year, and credit growth continues to surge as the Chinese economy picks up speed.
This has provoked speculation that Chinese banks could run into major problems with non-performing loans as they rush to meet official lending targets.
So, when US and European bankers descended on Beijing last week for a meeting of the Institute of International Finance (IIF), they expected to hear Chinese banks give an account of how they hope to avoid such problems. But instead, the visiting bankers found themselves being grilled about their part in precipitating a global financial crisis.
Even as they were lectured for their profligate ways, foreign bankers learned that Chinese banks could soon be eyeing some of their banks as takeover targets. Western bankers need to deleverage by selling assets and this presents an ‘unprecedented opportunity’ for Chinese banks, said Ma Weihua, president and chief executive of China Merchants Bank.
The chairman of China Investment Corporation, Jin Liqun, told the heads of some of the world’s leading banking institutions that Chinese banks previously looked upon their Western counterparts as ‘trainers’. Now, he said, in the aftermath of the crisis, ‘the trainers need to learn themselves’, adding that ‘we are all developing countries now’.
Mr. Jin bridled at the suggestion that the current high rate of credit expansion by Chinese banks could lead to poor lending decisions and to a high rate of non-performing loans (NPLs) in the banking system. ‘I am impressed by the prudential management’ of Chinese banks, he said. ‘All loans are individually screened,’ he added.
China Banking Regulatory Commission chairman Liu Mingkang also put visiting Western bankers on the defensive when he declared that the global banking system is in need of a new road map or ‘cooking manual’ after the crisis.
China’s banking industry is well-positioned to provide leadership, he suggested. Chinese banks are ‘well capitalised’ and their leverage ratios are well below those of Western banks that were stretched to breaking point at the onset of the financial crisis, said Mr. Liu.
Meanwhile, loan loss reserves at Chinese banks are comfortably high, in contrast to banks elsewhere that are still racing to provision against bad loans and toxic assets, he added.
This remarkable about- turn in confidence among Chinese banks that not long ago were laden with huge amounts of bad debt stems from radical approaches that China adopted in dealing with NPLs. They were largely siphoned off into asset management companies and the banks were then recapitalised by the state.
The West would do well to emulate such vigorous policy actions so as to deal with the toxic asset problem once and for all, Chinese officials suggested at the Beijing meeting, which was co-sponsored by the IIF and the Bank of China.
Not only did China act resolutely in taking NPLs out of the system and recapitalising banks, it also enforced much higher standards of risk-management on banks, Mr. Jin said. ‘Quality has not been sacrificed to quantity’ amid the officially encouraged surge in Chinese bank lending this year, he insisted.
Western bankers were also excoriated by billionaire financier George Soros who said that some of the financial derivatives transactions in which Western banks had engaged, especially those involving credit default swaps, were tantamount to using ‘weapons of financial mass destruction that ought to be outlawed’.
Asia’s aversion to such toxic assets was, meanwhile, underlined by South Korean Prime Minister Han Seung-soo who noted in Beijing that as of 2008, over-the-counter derivatives assets accounted for only 6 per cent of Korean banks’ total assets. This, he noted, was much lower than the 25.7 per cent exposure of American banks.
IIF chairman Josef Ackermann, who is also chairman and chief executive of Deutsche Bank, acknowledged that ‘we continue to face daunting challenges to restore confidence (and to) strengthen our institutions’. But he added that ‘we are now seeing many firms strengthen risk management approaches and processes’, while compensation practices are also being reformed.
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China banks now eye Western targets
Non-performing loans will not be problem in China, its bankers insist
By ANTHONY ROWLEY
15 June 2009
BANK lending in China has already surpassed what was supposed to be the official target for the whole of this year, and credit growth continues to surge as the Chinese economy picks up speed.
This has provoked speculation that Chinese banks could run into major problems with non-performing loans as they rush to meet official lending targets.
So, when US and European bankers descended on Beijing last week for a meeting of the Institute of International Finance (IIF), they expected to hear Chinese banks give an account of how they hope to avoid such problems. But instead, the visiting bankers found themselves being grilled about their part in precipitating a global financial crisis.
Even as they were lectured for their profligate ways, foreign bankers learned that Chinese banks could soon be eyeing some of their banks as takeover targets. Western bankers need to deleverage by selling assets and this presents an ‘unprecedented opportunity’ for Chinese banks, said Ma Weihua, president and chief executive of China Merchants Bank.
The chairman of China Investment Corporation, Jin Liqun, told the heads of some of the world’s leading banking institutions that Chinese banks previously looked upon their Western counterparts as ‘trainers’. Now, he said, in the aftermath of the crisis, ‘the trainers need to learn themselves’, adding that ‘we are all developing countries now’.
Mr. Jin bridled at the suggestion that the current high rate of credit expansion by Chinese banks could lead to poor lending decisions and to a high rate of non-performing loans (NPLs) in the banking system. ‘I am impressed by the prudential management’ of Chinese banks, he said. ‘All loans are individually screened,’ he added.
China Banking Regulatory Commission chairman Liu Mingkang also put visiting Western bankers on the defensive when he declared that the global banking system is in need of a new road map or ‘cooking manual’ after the crisis.
China’s banking industry is well-positioned to provide leadership, he suggested. Chinese banks are ‘well capitalised’ and their leverage ratios are well below those of Western banks that were stretched to breaking point at the onset of the financial crisis, said Mr. Liu.
Meanwhile, loan loss reserves at Chinese banks are comfortably high, in contrast to banks elsewhere that are still racing to provision against bad loans and toxic assets, he added.
This remarkable about- turn in confidence among Chinese banks that not long ago were laden with huge amounts of bad debt stems from radical approaches that China adopted in dealing with NPLs. They were largely siphoned off into asset management companies and the banks were then recapitalised by the state.
The West would do well to emulate such vigorous policy actions so as to deal with the toxic asset problem once and for all, Chinese officials suggested at the Beijing meeting, which was co-sponsored by the IIF and the Bank of China.
Not only did China act resolutely in taking NPLs out of the system and recapitalising banks, it also enforced much higher standards of risk-management on banks, Mr. Jin said. ‘Quality has not been sacrificed to quantity’ amid the officially encouraged surge in Chinese bank lending this year, he insisted.
Western bankers were also excoriated by billionaire financier George Soros who said that some of the financial derivatives transactions in which Western banks had engaged, especially those involving credit default swaps, were tantamount to using ‘weapons of financial mass destruction that ought to be outlawed’.
Asia’s aversion to such toxic assets was, meanwhile, underlined by South Korean Prime Minister Han Seung-soo who noted in Beijing that as of 2008, over-the-counter derivatives assets accounted for only 6 per cent of Korean banks’ total assets. This, he noted, was much lower than the 25.7 per cent exposure of American banks.
IIF chairman Josef Ackermann, who is also chairman and chief executive of Deutsche Bank, acknowledged that ‘we continue to face daunting challenges to restore confidence (and to) strengthen our institutions’. But he added that ‘we are now seeing many firms strengthen risk management approaches and processes’, while compensation practices are also being reformed.
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