As stated in his memo, chief strategist at CLSA in China and Hong Kong, Francis Chun, in 2015 the volume of unrecoverable loans was approximately 15-19% of the total volume of loans issued by Chinese banks, reports Bloomberg. At the same time, according to Chung, the share of unrecoverable debts will continue to grow to 20-25%. According to official statistics, the bad debts in the total volume of loans is 1,67%.
According to a CLSA estimate, the potential losses of Chinese banks from bad loans can range from 6.9 to 9.1 trillion yuan (us$1.1–1.4 trillion). CLSA estimates based on public data on public companies the ability to service the debt.
“Shadow” non-performing loans (i.e., off-balance-sheet loans, in particular, entrusted loans and loan guarantees), according to estimates by CLSA, may amount to 4.6 trillion yuan ($700 billion), the losses from them can be up to $400 billion.
According to Chuna, the banking system of China has reached the point where you need a comprehensive solution to the problem of non-performing loans, however, no action plan on this issue yet.
Today it is the most pessimistic assessment of potential losses from non-performing loans in China.
According to the published in February according to the Commission on regulation of Bank activity of China, the volume of overdue loans in 2015 has grown to 1.27 trillion yuan ($195 billion). At the same time, informed source Reuters in January 2016, said at a government meeting the banking regulator of China called another figure – of 1.95 trillion yuan ($296 billion). If you review these figures, the share of bad debts in the total amount of loans last year compared to 2011 more than doubled. While Chinese official statistics takes into account only credit portfolios, said Autonomous Research analyst Charlene Chu.
The problem of bad debts in China has attracted the attention of the IMF and many investors. One of the indicators of credit pumping of the Chinese economy became the 11-fold increase in the assets of the banking system since 2006 — last year it amounted to an incredible $34 trillion (3,5 China’s GDP).
In February of this year, the Manager of hedge Fund Hayman Capital Management Kyle bass suggested that the losses of Chinese banks from bad debts may exceed the losses of U.S. banks from the subprime mortgage crisis five times. Chu estimated amount of non-performing loans in the portfolios of Chinese banks at 22%. And in March, the IMF in its report on global financial stability, said that 15.5% of all loans issued by Chinese banks are “potentially risky”. Hypothetical losses for the banks, the IMF then estimated at us $756 billion, equivalent to 7% of China’s GDP.
In April, the Chinese magazine Caixin wrote, citing a senior official of the China development Bank that the authorities are going to convert bad debt to 1 trillion yuan ($153 billion) in shares. Such a policy has already been adopted by Beijing in the late 1990-ies. Official confirmation of this information is not received, however, the IMF expressed concerns about such a policy. The Fund noted that such step will allow to continue to work “companies-zombies” who need to “allow to die”.