China Banks

[BlueKelah]

Interesting article I came across whilst reading up on the YZJ case. Ended up instead its a very good article explaining the current different types of shadow banking and how it all works..

http://www.economist.com/news/finance-an...her-begins

---Extract---
IN THE town of Jingjiang, a few hours’ drive from Shanghai, Yangzijiang Shipbuilding is making 21 huge container ships for Seaspan, a Canadian shipping firm. An enormous sign declares, “We want to be the best shipyard in China.” It is certainly among the most profitable, earning 3 billion yuan ($481m) last year. But only two-thirds or so of that came from building ships. The rest came from lending money to other companies using a local financial instrument called an entrusted loan. This puts Yangzijiang at the forefront of another industry: shadow banking.
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[greengiraffe]

You should change your name to BlueKilat. Well done in uncovering the interesting article.

Overall, there is so much to be done in the highly opaque China banking sector. Given the way scams have been unfolding over the years in Chinese companies notwithstanding good times, one can rightly expect that there will be more gravity in the seriousness of future scams. In addition with the amount of corruption and the huge amount of leakages from China in the last few years that fuel property bubble overseas, anyone should be highly skeptical when investing in China companies.

Having said that as China remains a closed economy, the drastic impact of the slowdown is unlikely to be any different to that of the busting of the Japanese asset bubble in the 90s.

GG

Interesting article I came across whilst reading up on the YZJ case. Ended up instead its a very good article explaining the current different types of shadow banking and how it all works..

http://www.economist.com/news/finance-an...her-begins

---Extract---
IN THE town of Jingjiang, a few hours’ drive from Shanghai, Yangzijiang Shipbuilding is making 21 huge container ships for Seaspan, a Canadian shipping firm. An enormous sign declares, “We want to be the best shipyard in China.” It is certainly among the most profitable, earning 3 billion yuan ($481m) last year. But only two-thirds or so of that came from building ships. The rest came from lending money to other companies using a local financial instrument called an entrusted loan. This puts Yangzijiang at the forefront of another industry: shadow banking.
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[BlueKelah]

thanks for the compliment GG

[greengiraffe]

China protests highlight shadow lending problems
DOW JONES AUGUST 15, 2014 11:45AM

A wave of small protests outside banks and government offices around China in recent days has cast a spotlight on shadow lending, a sector that provides important alternative financing channels for small firms shut out of regular bank loans.

On Tuesday, a group of investors in the city of Chengdu in Sichuan province held a demonstration in front of local government buildings after one of the biggest credit-guarantee companies in Sichuan failed to step in and cover loans to small firms it had insured.

A day earlier, a few dozen investors staged protests outside Industrial & Commercial Bank of China branches in Guangzhou and Shanghai after they had been told they would need to wait at least another 15 months to get the payout on a trust-company product sold at the bank that they wanted the lender to step in to ensure payment.

Protesters carried a banner reading, "Swindler ICBC, pay back our blood-and-sweat money," outside an ICBC branch in Guangzhou. The product's prospectus didn't mention any liability for ICBC in case of default, but several investors said the bank had assured them of the product's low risks.

Neither ICBC nor the trust company responded to requests for comment.

Regulators have long sought to curb the proliferation of shadow lending on concerns of a buildup of debt. A widely anticipated wave of defaults among China's trust companies--which act as conduits by raising money to invest in assets or to make loans--has so far failed to materialize. But the protests, which follow other similar events around China in recent months, serve as a reminder of the difficulty to pin down who is responsible when something goes wrong.

The Sichuan protests illustrate the problematic role of lightly regulated credit-guarantee companies, which have become an important component on the path to loans for China's small and medium-size firms. Bank and other financial institutions typically require significant collateral, which small firms rarely have, to back a loan. But they are sometimes willing to extend credit if another company promises to pay off the loan if the borrower can't. The credit-guarantee companies give banks and other lenders peace of mind that their loans are safe, charging the borrower a small fee for the service.

An investor surnamed Gao in Chengdu said he invested 500,000 yuan ($80,600) in a small loan company late last year, with the funds then being lent out to small businesses in the province. Mr. Gao said he was promised at least 15% annualized return on his investment.

The lending was guaranteed by Huitong Credit & Guaranty Co., which said in a statement on July 15 that its chairman and other executives hadn't been seen for more than a week. Phones rang unanswered at both the company and local government offices on Thursday.

"I learned from local press that the executives [of Huitong] have run away and then I knew my investment was in danger," said Mr. Gao.

Besides small loan companies, Huitong also guaranteed loans to small firms made by trust companies and banks. It isn't clear whether those investments are also at risk.

The unclear role of banks in the sale of trust-company instruments is at the heart of the ICBC protests. The product that sparked the protests was issued by China Credit Trust Co. and attracted a total of 1.3 billion yuan ($210 million) from investors. It had required a minimum investment of at least three million yuan and promised around 10% annualized return.

The company said it would pay back investors over the coming 15 months, after selling its collateral, including several coal mines.

"ICBC managers told us the product was safe and both the principal and interests are guaranteed," said Zhang Liang, an investor in Guangzhou who attended Monday's protest. "If it wasn't sold by ICBC, we would not have bought the product since we never heard of this trust firm before," he said.

[greengiraffe]

Hi Moderator,

Could you please change the heading of the topic to China Banks.

Cheers
GG

China state banks report surge in soured loans
DOW JONES SEPTEMBER 01, 2014 10:15AM

China's biggest state-owned banks reported a surge in soured and castoff loans in the first half of the year as China's slowing growth takes an increasing toll on its lenders.

The five biggest state-owned banks-- Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications--wrote off and transferred out their books a total of 46.91 billion yuan ($7.57 billion) bad loans in the first half of the year, according to calculations by The Wall Street Journal. That is more than twice of the 22.07 billion yuan they eased a year earlier and marks an effort to clean up their books amid the prospect of still-more bad loans coming.

Despite that, the five lenders also reported a total of 423.49 billion yuan nonperforming loans outstanding on their books at the end of June, up 21% from a year earlier. They also reported a slowdown in profit growth.

Bad-loan levels within China's whole banking industry remain low in terms of their total portfolios. Still, the level is expected to creep upward as cooling economic growth hampers borrowers' ability to repay their debts. China reported 7.4% economic growth in the first half from a year ago, below the 7.7% growth rate of last year. Economists worried that China may miss the 7.5% annual growth target set by the government this year if the situation doesn't show significant improvement in coming months.

"Asset quality of Chinese banks is still under downward pressure and we haven't seen when it could bottom out," said Standard & Poor's bank analyst Liao Qiang. "It is very likely that the deterioration could accelerate in the future."

In the first half of the year, new bad loans throughout the banking system had already exceeded the increase for all of last year, according to official data.

Chinese regulators have in recent years urged lenders to expunge more bad loans while their earnings are still robust enough to do so, and the government has also relaxed the rules for some write-offs.

In the first half of the year, the top five banks reported a total of 509.29 billion yuan in net profit, up 9% from same period last year but down substantially from their regular 20% growth rate during China's boom years. The result, however, was still robust by international standards.

Last time the banks had bad-loan problems, Beijing helped the biggest four banks unload some 1.3 trillion yuan of bad debt to entities called bad banks in the 1990s, which pulled them out of the red and enabled them to go public later.

To avoid costly bailouts in the future, the government has been pushing banks to clean up their messes earlier.

The bad banks, formally called asset-management companies, include China Cinda Asset Management Co., which listed its shares in Hong Kong last year, still play their role to resolve soured loans. But they operate now more market-oriented in pricing and buying these assets.

All five banks said that they have sold bad loans in packages to entities like bad banks. Executives of ICBC, AgBank and BOC said that they have sold 19.3 billion yuan worth of bad assets in total during the first half.

China recently has given the green light to five local governments to set up bad banks that will buy nonperforming loans from local lenders. The five firms are in the city of Shanghai and provinces of Anhui, Guangdong, Jiangsu and Zhejiang. Those locations are in eastern and southern China, where banks' soured loans concentrate. Banks said they saw rising nonperforming loans from steel trade, manufacturing sector as well as small businesses that have been hit most by China's slowing economic growth and the government's efforts to resolve overcapacity problems.

"Banks are expected to step up write-offs in the following months given a spike in nonperforming loans and the government's easing of the rules. More local asset-management companies will join forces soon and they will boost the efficiency of bad-loan disposals for banks," said Philip Securities bank analyst Chen Xingyu.

[freedom]

So they have earned more than 500 billion yuan and wrote off less than 50 billion yuan out of total loans of more than 30 trillion. But let's panic first.

China is slowing down, everybody knows it and no one is denying that.

[CityFarmer]

Hi Moderator,

Could you please change the heading of the topic to China Banks.

Cheers
GG

The thread starter is BlueKelah. I will only change it after BlueKelah agree on the change.

Regards
Moderator

[CityFarmer]

So they have earned more than 500 billion yuan and wrote off less than 50 billion yuan out of total loans of more than 30 trillion. But let's panic first.

China is slowing down, everybody knows it and no one is denying that.

The article quoted NPL in value, rather as ratio, is misleading. The value sound huge and disastrous, but the NPL ratio is only less than 1%.

Everybody knew NPL ratio for China bank is good officially, with less than 1%, no one is denying that as well.

[BlueKelah]

Hi guys and hopefully gals too,
thanks for talking about this thread again. went and googled and found this article that discusses some history of chinese banking from 1990s and surprised that the "bail-out" bank is gonna IPO and sell some shares to Goldman Sachs and even to Malaysian sovereign wealth fund Khazanah which bought the dying Malaysia Airlines.

I think "Shadow Banking" is a much sexier phrase than "China Banks" but since GG is the one updating us with the latest news feeds on economic happenings, I dun mind if moderators change the thread title to what he has requested

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Last updated: August 31, 2014 9:05 pm
China’s bad bank clean-up crew
By Jamil Anderlini and Gabriel Wildau

The prospect of the first ever default in China’s rapidly expanding shadow banking sector sent shockwaves through financial markets this year.

As word spread that a Rmb3bn trust product called “China Credit Equals Gold #1” was on the verge of defaulting, investors began to question the stability of China’s entire financial system.

But just days before the scheduled default, a mystery buyer bailed out the product, allowing investors to get back all the principal and most of the interest they were owed.

The Financial Times has learnt that the covert saviour, not publicly identified until now, was Huarong Asset Management, one of four “bad banks” set up in the late 1990s to deal with an enormous load of non-performing loans in the banking system.

More than five years into one of the biggest credit booms in history, Chinese banks are bracing for a fresh wave of bad debt that some analysts and economists believe could rival that of the late 1990s.

Read more here

[greengiraffe]

China banking crisis 'almost certain', warns economist Gabriel Stein
538 words
2 Sep 2014
Financial Services Monitor Worldwide
FINSMEN
English
© 2014 Global Data Point. All Rights Reserved. Provided by Syndigate.info, an Albawaba.com company

China's financial system is almost certain to face a full blown banking crisis according to a senior international economist. Gabriel Stein, of economic consulting firm Oxford Economics, told a Sydney audience on Tuesday that Chinese authorities were understating the extent of bad loans on their banks' books and faced tough choices in dealing with the potential bank failure. We don't know when there will be a China banking crisis and how it will play out but it is almost certain there will be one, said Mr Stein, a professor at the University of London who served as chief economist at consulting firm Lombard Street from 1991 to 2012. We do think the financial risks are high. Bad loans are understated. If you compare to 20 years ago, credit growth had been the same and the Chinese authorities owned up to about 30 per cent of non-performing loans in the banking system. They currently claim its one per cent Mr Stein warned of a a loss of confidence and a brief slump in activity.

There is a possibility of contagion through countries with banking links to China such as Hong Kong, Taiwan and Korea Mr Stein said there were two main concerns about how authorities handled a potential crisis. One is that they could be blindsided and be slow to respond. But he said more worrying was that they may elect to allow a small or mid-range institution fail, which could roil confidence in the system. A small bank may be allowed to fail and you could get a Chinese Lehman Brothers effect, he said, Chinese authorities are not smarter than anyone else but not more stupid, so I assume they have taken the experiences of what has happened elsewhere and run 'war games' about what might happen. Mr Stein said he did not believe that China would force hundreds of thousands of savers that invested in high yielding trust products to suffer losses as defaults in the shadow banking sector increased. Earlier this year an investment trust known as Credit is Gold #1 defaulted but investors were bailed out by an unknown party. This week it emerged that bad bank Huarong Asset Management had stumped up the bail-out funds. Bad banks were set up by the Chinese government to mop up bad debts in the system. Earlier this year a Chinese bad bank, China Cinda Asset Management attracted private capital though a listing on the Hong Kong stock exchange. Trust products form part of the shadow banking system, which allowed China's banks to skirt banking regulations by effectively taking savings to finance loans off their balance sheets. Savers were attracted to the trust products, which offered much higher rates than deposit rates. Regulators are now pressuring Chinese banks to bring these exposures out of the shadows and back onto their balance sheets. Mr Stein warned that this would tighten financial conditions in China because the additional exposures will reduce the reserve requirement ratios. Mr Stein said his firm was working with the People's Bank of China to make them aware of the impact of bringing these loans back on bank balance sheets.


Global Data Point Ltd.

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