Bank Regulation

China Banking ‘Blind Spot’ Poses Threat To Investors

A hundred billion here, a few hundred billion there, and pretty soon it all starts to add up.

The Financial Times reports that a $647 billion “blind spot,” as measured by Barclays, exists in the financial reporting by Chinese banks — spanning both rural and commercial settings.

That means, according to the data, that more lenders could be under greater government scrutiny and intervention, or may actually collapse.

The data as compiled by Barclays comes in the wake of the state takeover of Baoshang Bank. That bank took its place among 19 that have a combined $647 billion USD equivalent in assets (hence the blind spot) that have not yet filed financials for the 2018 year. The delayed results signal that non-performing assets may have, as the financial publication stated, turned into bad debt.

It could be that Baoshang is a shot across the bow, as that firm was taken over by the Chinese government, which said the takeover was tied to “severe credit risks,” and where the action was the first one in 18 years.

Baoshang’s outstanding loans totaled 156.5 billion yuan ($22.68 billion) at the end of 2016.  That is a 65 percent jump since 2014. The bank’s non-performing loan ratio, as of December 2016, was 1.68 percent, as reported in recent weeks.

In another example, Bank of Jinzhou, among the 19 that have not published results, said that EY Hu Ming has resigned as auditor after it was found that loans had not been used for their stated purpose. The bank noted that EY wanted evidence of the customers’ ability to service the debt.  The fact that no such evidence was offered may signal bad debt.

The Barclays report said that “We expect more ‘exits’ of smaller banks or non-bank financial institutions (likely through takeover or M&A with bigger parties), most likely with some regional significance.”

“This does have some impact on investors’ confidence in the market,” Dong Ximiao, vice head of Renmin University’s Chongyang Financial Institute, said to the FT.

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