In China, the increased so-called credit gap, which is considered the BMR one of the most reliable indicators of future banking crises, has reached record levels. The “credit gap” represents the difference between the ratio of credit to GDP and the average of this ratio over prior periods. If this figure exceeds 10%, then, according to the BIS, the country’s banking system could face a crisis at any time over the next three years. According to the latest quarterly report of the BIS, the indicator “credit gap in China is of 30.1%.
On this indicator China is far ahead — in particular, in the case of Canada, data for which is also reflected in the report, exceeding the ratio of loans to GDP is much lower (12%).
The Bank notes that in two thirds of cases when “credit gap” accounted for more than 10% within three years, the banking system faced problems.
The indicator “credit gap in China for the first time exceeded the “threat” of 10% in 2009, however, the crisis has not touched the banking sector of the PRC. As the Financial Times, the less the probability of a crisis is the fact that the amount of loans that Chinese banks issue in foreign currency remains low.
According to the BIS at the end of the first quarter of 2016, the volume of credit debt in China amounted to 255% of GDP ($27,2 trillion). Thus the percentage of data rate in China is lower than in Japan (394%), UK (271%) and the average for the Eurozone (271%). However, the concern of economists call the rate at which grows in China, this figure — in 2008 it was 147%. The danger of a growing credit debt to the Chinese corporate sector was indicated in the June report, IMF Deputy IMF managing Director David Lipton. “Despite the fact that corporate debt of China is controlled, the figure is great and continues to grow. The solution to this problem is necessary to avoid serious problems in the future,” he said. Goldman Sachs in its report on this issue, pointed out that “every other major country in which the rapidly growing volume of loans facing with financial crisis or a prolonged slowdown in GDP growth”.
According to estimates of the IMF, about $1.3 trillion of loans Chinese banks issued to companies that do not have the necessary cash flow. The volume of loans issued by Chinese corporate sector is 171% of GDP.
The danger of the growing debt load of the corporate sector and are aware of the Chinese authorities — at the end of 2015, Premier of the state Council of China Li Keqiang at the meeting stated the need to kill “zombies” (i.e. to stop supporting companies that chronically suffer losses).
The danger of the growth of the Chinese debt was noted by many experts and investors, including billionaire George Soros, according to which most of China issued the loans is spent on support for unprofitable enterprises and cover “bad debt”, while the model of economic growth through excessive lending similar to what happened in the US in 2007-2008, before the financial crisis.
According to Bloomberg, the Chinese authorities apparently found a way to control credit expansion, while not jeopardizing the growth of the real economy. Lately, you can see the tendency to shift the focus of lending from corporate sector to households. In August 2016 the volume of issued Chinese Bank loans to households grew by 21% compared to a year earlier. The volume of loans to corporate sector increased by only 10%, writes Bloomberg.
BMR reviewed the “credit gaps” in 42 countries and the Euro area. In addition to China, the “danger” zone was only Canada (12%). High rates of credit gaps Turkey (9.6 per cent). Mexico (8.8%) and Switzerland (7.2 per cent). The figure of the “credit gap” in Russia according to estimates of BMR small at 3.7%.