According
to the agency’s Tuesday report, up to 21 percent of China’s loan
pool is “non-performing loans,” (NPLs) which means debtors are struggling
to make the repayments. At the same time, only 1.8 percent of loans
were classified as bad ones by state authorities last June.
Moreover, Beijing’s reliance on credit growth
for providing near-term GDP increase could exacerbate existing problems,
Fitch stressed, as it “will increase the size of asset-quality
problems in the financial system.” “There seems a high likelihood that banks’
NPL ratios will continue rising over the medium term, in light
of this discrepancy,” the report stated. “There are already signs
of stress, most obviously in the increased frequency with which
banks are writing off or offloading loans, such as those to asset-management
companies.” As of the late 2015, Chinese debt made up 243 percent
of the national GDP with a prospect of reaching 269 percent
on a condition of debt continuing to grow. The latest
statistical data also revealed that loans will be increasing by 13 percent
annually, surpassing the pace of the GDP growth that stands at 6.5
percent as of now.
Liquidation of bad loans would cost China some $2.1 trillion,
if the country’s financial sector moved to address the problem
immediately, the report assessed. In longer perspective, however, dealing
with the growing economic pressure would require the government taking
some drastic measures such as writing off debts or expanding
repayment terms.
Still, some experts are skeptical about the Fitch’s assessments.
Senior economist at Commerzbank’s Singapore Hao Zhou said that the
problems of Chinese financial system are caused by the shadow banking
sector and aren’t big enough to plunge the economy. “The size [of shadow
banking] is about 12 to 15 per cent of the overall banking
[industry] and most of the shadow banking assets are related to bonds
and cash products, which is seen as a low-risk product,” he said
in an interview with City A.M.
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