Sharp spike in ‘frankly defaulting loans’ blamed on poor lending practices
Bloomberg 08 February 2010
(HONG KONG) Non-performing loans in China have risen into the ‘trillions of renminbi’ because of poor lending practices, an insolvency lawyer said.
‘We work really closely with Sasac, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of frankly defaulting loans already in China that no one is doing anything about,’ Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference last week. ‘At some point, there’s going to be a reckoning for that.’
China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fuelling inflation.
The Shanghai office of the China Banking Regulatory Commission warned last Thursday that a 10 per cent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said on Jan 4 that loans were channelled into stock and property speculation last year, which China has been taking measures to stop.
Chinese banks issued a record 9.6 trillion yuan (S$2 trillion) of new loans last year as part of a four trillion yuan stimulus package aimed at bolstering growth through the global financial crisis.
‘At some point in China, maybe it will be two, three or five years, but at some point, there will be in the property markets and in the markets generally, there will be rationalisation of very poor lending practices,’ said Mr. McDonald during the panel discussion on restructuring and refinancing at the Global Loan Market Summit in Hong Kong.
Over the past decade, China’s government has spent more than US$650 billion bailing out state banks after years of government- directed lending caused bad loans to balloon. The average non-performing loan ratio at Industrial & Commercial Bank of China, China Construction Bank and Bank of China dropped to about 1.6 per cent as at Sept 30 from more than 20 per cent before each bank was bailed out, according to earnings reports.
New loans last year helped ignite a Chinese real-estate boom, with prices in 70 cities rising at the fastest pace in 18 months in December.
Should property prices fall 10 per cent in Shanghai, the ratio of delinquent mortgages would almost triple for the city’s banks, according to the Shanghai branch of the CBRC, citing a stress test based on Sept 30 figures. A 30 per cent decline would cause the ratio to jump almost fivefold, the agency said.
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China NPLs in trillions of yuan
Sharp spike in ‘frankly defaulting loans’ blamed on poor lending practices
Bloomberg
08 February 2010
(HONG KONG) Non-performing loans in China have risen into the ‘trillions of renminbi’ because of poor lending practices, an insolvency lawyer said.
‘We work really closely with Sasac, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of frankly defaulting loans already in China that no one is doing anything about,’ Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference last week. ‘At some point, there’s going to be a reckoning for that.’
China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fuelling inflation.
The Shanghai office of the China Banking Regulatory Commission warned last Thursday that a 10 per cent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said on Jan 4 that loans were channelled into stock and property speculation last year, which China has been taking measures to stop.
Chinese banks issued a record 9.6 trillion yuan (S$2 trillion) of new loans last year as part of a four trillion yuan stimulus package aimed at bolstering growth through the global financial crisis.
‘At some point in China, maybe it will be two, three or five years, but at some point, there will be in the property markets and in the markets generally, there will be rationalisation of very poor lending practices,’ said Mr. McDonald during the panel discussion on restructuring and refinancing at the Global Loan Market Summit in Hong Kong.
Over the past decade, China’s government has spent more than US$650 billion bailing out state banks after years of government- directed lending caused bad loans to balloon. The average non-performing loan ratio at Industrial & Commercial Bank of China, China Construction Bank and Bank of China dropped to about 1.6 per cent as at Sept 30 from more than 20 per cent before each bank was bailed out, according to earnings reports.
New loans last year helped ignite a Chinese real-estate boom, with prices in 70 cities rising at the fastest pace in 18 months in December.
Should property prices fall 10 per cent in Shanghai, the ratio of delinquent mortgages would almost triple for the city’s banks, according to the Shanghai branch of the CBRC, citing a stress test based on Sept 30 figures. A 30 per cent decline would cause the ratio to jump almost fivefold, the agency said.
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