The State of Banks in China

The state of banks in China dominates concerns about the economy and global growth.

With pictures of angry crowds outside banks and tanks on the street in one city to quell discontent about being unable to withdraw funds, it bears asking what the true state of Chinese banks is.

Loan classification in China is notoriously pliable, so Chinese banks can set standards for loans being classified as nonperforming that would not pass regulatory scrutiny in other countries, a fact they openly acknowledge.

While an interest payment in most jurisdictions that was overdue by 90 days would change the classification, some Chinese banks have said they do not change the classification of the loan to doubtful until "The operations of the borrower have been suspended for at least half a year." The cessation of a company's operations would make any outstanding loans dubious.

Second, Chinese banks are highly leveraged and short on capital.

The weighted reserve rate for all banks in China is now just 8.4 percent of all capital.

Chinese banks have already been tightening limits on outward U.S. dollar transfers, but this has done little to stop leaks in capital flows out of China.

https://www.theepochtimes.com/mkt_app/the-state-of-banks-in-china_4612211.html