"There is danger from all men. The only maxim of a free government ought to be to trust no man living with
power to endanger the public liberty." - - - - John Adams

Friday, October 17, 2014

China's Banks are looking at a debt implosion

The Implosion is Coming
  • You can only build ghost cities and borrow from yourself for so long until markets fall apart.  The real questions is, when China's markets burst will they drag down economies around the world?

Chinese banks are seeing the writing on the wall in terms of the debt they've accumulated, and they are taking measures to protect themselves.

The Bank of China is planning the biggest sale of shares ever — $6.5 billion to offshore investors, Bloomberg says.  It's all in an effort to create a capital cushion.

China's banking system has piled up the most bad loans of any time since the financial crisis, and the banks are preparing for the moment those debts collapse reports Business Insider.

Especially in corporate and property sectors, things are looking dire.

Last month, Morgan Stanley released a report saying China's corporates took on 5.4 times more leverage than ever before in the first half of 2014, bringing leverage up to levels unseen since 2006.

And it hasn't stopped. Short-term lending to corporates rose to $26.8 billion in September from $11.2 billion in August. Long-term lending hit a four-month high of $45.9 billion in September, up from $39.3 billion in August.

This lending comes amid a big effort to cut costs among Chinese companies. They know a cash crunch is coming as the PBOC maintains that it will not take major measures to stimulate the economy.

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