Bloomberg has an important and well put together article this afternoon. While Australian banks are setting new records today, Chinese banks are going the other way:
China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown.
The nation’s 10 largest lenders reported overdue loans reached 588 billion yuan ($94 billion) at the end of 2013, a 21 percent increase from a year earlier to the highest level since at least 2009. The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings, while a government crackdown on nonbank funding makes it tougher for borrowers to get new credit or finance older debt.
…Overdue loans, those late by at least a day, were 31 percent greater for the banks as of Dec. 31 than nonperforming ones, which are debts they don’t expect to recoup in full. That’s the biggest gap in at least five years, signaling lenders may be resisting acknowledging the deterioration to avoid setting aside funds to cover potential losses.
While nonperforming loans reported by China’s banking industry have increased for 10 straight quarters to the most since September 2008, they accounted for only 1.04 percent of total loans …That bad-debt ratio may rise to as much as 1.5 percent, the highest since December 2009…
I expect bad debts to rise further and for longer than markets reckon. Rebalancing demands that bad debts be written off if rates of return are going to rise and productivity drive growth once more.
