Tag Archives: Chinese banks

There’s a major banking crisis unfolding in China, by Tim Staermose

For 2020, three contestants are at the starting line in the race to see what initiates a global credit crisis: European banks, the repo market, or Chinese banks. From Tim Staermose at sovereignman.com:

[Editor’s note: This letter was written by Tim Staermose, Sovereign Man’s Chief Investment Strategist]

The Chinese government isn’t exactly famous for its honesty and transparency.

So when the Chinese regulators are starting to openly report trouble in their banking system, it’s time to take notice.

According to the People’s Bank of China (PBOC)’s “2019 China Financial Stability Report,” 586 out of 4,379 Chinese lenders were officially deemed to be “high risk”.

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But that overall figure, bad as it is, may be masking the true extent of the problem.

According to the same report, over one third of rural lenders are deemed to be “high risk.” One in three banks in rural China. Hmmm.

And this lack of confidence is beginning to cause bank runs.

Yingkou Bank in Liaoning Province, and Yichuan Rural Commercial Bank in Henan Province, both faced bank runs in early November.

In May, the government took over troubled Baoshang Bank in Inner Mongolia – the first such government intervention to nationalize a private Chinese financial institution in more than 20 years.

A joint bailout by three state-owned financial institutions was also organized for the Bank of Jinzhou in July.

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Chinese Bank On Verge Of Collapse After Sudden Bank Run, by Tyler Durden

The Chinese banking system is yet another of a multitude of worrisome situations that have the potential to fully ignite the next global financial crisis. From Tyler Durden at zerohedge.com:

First it was Baoshang Bank , then it was Bank of Jinzhou, then, two months ago, China’s Heng Feng Bank with 1.4 trillion yuan in assets, quietly failed and was just as quietly nationalized. Today, a fourth prominent Chinese bank was on the verge of collapse under the weight of its bad loans, only this time the failure was far less quiet, as depositors of the rural lender swarmed the bank’s retail outlets, demanding their money in an angry demonstration of what Beijing is terrified of the most: a bank run.

Local business leaders, political cadres and banking executives rallied Thursday at the main branch of Henan Yichuan Rural Commercial Bank, just outside the central Chinese city of Luoyang, where they stood one by one before a microphone to pledge their backing for the bank, as smiling employees brandished wads of cash before television cameras to demonstrate just how much cash, literally, the bank had.

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A Chinese Banker Explains Why There Is No Way Out, by Tyler Durden

From Tyler Durden at zerohedge.com:

Over the past year, we have frequently warned that the biggest financial risk (if not social, which in the form of soaring worker unrest is a far greater threat to Chinese civilization) threatening China, is its runaway non-performing loans, which at anywhere between 10 and 20% of total bank assets, mean that China is one chaotic default away from collapsing into the post “Minsky Moment” singlarity where it can no longer rollover its bad debt, leading to a debt supernova and full financial collapse. And as China’s total leverage keeps rising, and according to at least one estimate is now a gargantuan 350% of GDP (incidentally the same as the US), the threat of a rollover “glitch” gets exponentially greater.

To be sure, in recent months the topic of China’s bad debt has gained increasingly more prominence among the mainstream, and notably none other than Kyle Bass has made the bursting of China’s credit cycle the basis for his short Yuan trade as noted here previously:

What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.

And judging by the surge in recent and increasingly louder calls for a Chinese devaluation, some advocating a major one-off currency debasement, Bass’ perspective is certainly prevalent among the trading community. Bank of America goes so far as to speculate that the “upcoming G20 meeting in Shanghai offers an opportunity for policy makers to seize the “expectations” initiative via a one-off China devaluation.” It does, however, also add that the “risk is markets need to panic first” before instead of piecemeal devaluation, China follows through with a Plaza Accord-type currency intervention.

Friday’s adoption of NIRP by Japan, which send the US Dollar soaring, has only made any upcoming future Chinese devaluation even more likely.

But whether China devalued or not, one thing is certain: it is next to impossible for China – under the current socio economic and financial regime – to stop the relentless growth in NPLs, which even by conservative estimates at in the trillion(s), accounting for at least 10% of China’s GDP.

To continue reading: A Chinese Banker Explains Why There Is No Way Out