Are China’s Banks in Trouble?

Posted by Reading Time: 2 minutes

Aug. 5 – Recent speculation suggests China may be mired in non-performing debt at a larger scale than previously thought after the recognition that at least 20 percent of the stimulus plan has leaked out of the banking system and into speculative activities.

It’s a good time to take a look at the China banking sector. The new CCH book: “China’s Troubled Bank Loans: Workout & Prevention” written by Jianbo Lou, examines the significant and increasing problem of state bank non-performing loans (NPLs) in China, which have undermined the stability of the banking system and the efficient operation of markets.

The accumulation of NPLs in China has been caused by the dominant role of state banks in China’s financial markets, weak internal controls within state banks, policy loans to state owned enterprises, unnecessary administrative controls on banks’ lending activities, and inappropriate banking regulation and supervision.

The author draws on experiences at national, regional and international level to make recommendations for the development of better workout procedures for existing NPLs.

He also examines the role of banking regulation and supervision in preventing accumulation of NPLs and in avoiding the impact of NPLs on the stability of the banking system and the conditions of market discipline.

The highlights of the contents include: China’s Bank Non-Performing Loan Problem: Seriousness, Causes and Solution;Non-Performing Loan Workout: Bank Recapitalization and AMC Program;Non-Performing Loan Workout: Non-Performing Loan Disposal and Debt Restructuring;Non-Performing Loan Prevention: Enhancing Prudential Regulation and Supervision;Non-Performing Loan Prevention: Promoting Bank Internal Control Systems;Banking Safety Net: Mechanisms for Crisis Management and Concluding Observations and Recommendations for Restoring Market Discipline in China.

This book is worth a read to understand the coming financial problems that China is likely to endure over the next couple of years. Priced at RMB1955, orders may be made to Hegel.Y.Guo@cchchina.com.cn or contact CCH in Shanghai at www.cchchina.com.cn.