More banks need bailouts. China’s lax banking regulations have led to decades of bad loans, corruption, and mismanagement. Now, according to UBS Research, more than 24 of the nation’s banks need $339 billion in rescue funding to have 12.5 percent of their at-risk portfolio balanced by cash – the global standard for safe practice.
Although the official rate of bad loans is reported at 2 percent across the sector, analysts say that the actual rate is much higher. At least six Chinese banks haven’t disclosed financial statements for years.
Rumors appearing on social media hinted that some small banks could collapse. When crowds lined up at one such bank to pull their money out, more than 100 police officers were sent to control them.
China’s weakening economy is exposing a greater number of bad loans, and new regulations are forcing banks to acknowledge them and to tighten lending practices.
China has the resources to keep flailing banks afloat; the afflicted institutions are said to make up only about 4 percent of the country’s total banking assets. The troubles haven’t reached China’s four biggest banks, which are the world’s largest banks by assets.
TREND FORECAST: The Chinese economy will slow this year, in part, as a result of the recent outbreak of the coronavirus that hit hard at the start of the Chinese New Year… a time to travel, spend, and celebrate.
Beyond the virus, we forecast more bank bailouts and increased government spending to boost economic growth. This will put further downward pressure on its currency, which will in turn increase inflation, thus adding yet higher inflation risks should its central bank lower interest rates in their attempt to spur growth.
