Domestic bank credit acts in a similarly pro-cyclical way to foreign debt. When growth is booming, credit growth hides bad loans in favorable nonperforming loan ratios because assets are growing so fast – leading to a booming economy.
The problems show up if a macro shock of some sort intervenes. In the case of China, the shock will be a combination of higher inflation and interest rates. As growth slows, NPLs appear, banks pull back on loan expansion, and growth slows even more, creating a new wave of NPLs. Superficially “safe” NPL ratios suddenly reverse dramatically and risk sinking the whole macro ship.
http://asiasentinel.com/index.php?option=com_content&task=view&id=2283&Itemid=422
In Shanghai, outstanding loans to the real estate industry accounts for 27 percent of the total outstanding loans, according to Yan Qingmin, head of Shanghai Branch of China Banking Regulatory Commission (CBRC).
“The non-performing loan (NPL) ratio in Shanghai’s commercial housing development loans kept rising in 2009,” Yan warned.
http://english.people.com.cn/90001/90778/90859/6888068.html
Source: CHINDA, 04.02.2010
Filed under: Asia, Banking, China, Risk Management, Services, China 中国, Cinda Asset Management, Debt, Distress Debt, Economic Crisis, NPL Non Performing Loan
