2017-01-10bloomberg.com

Of late, however, liquidity in China has been a mere accounting artifact. Customers' deposits aren't sufficient to finance Bank of Jinzhou's 213 billion yuan in shadow loans, which are debt securities that the lender classifies as receivables. To make up the shortfall, it has borrowed 142 billion yuan from other financial institutions. Of this, as much as 78 percent is short-term financing.  After adjusting for shadow lending, S&P Global Ratings pegged Bank of Jinzhou's loan-to-deposit ratio at the end of 2015 at 153 percent.BANK OF JINZHOU SHADOW LOANS213 billion yuanBank of Jinzhou is hardly the only Chinese bank flirting with illiquidity: Almost all are sitting on a pile of debt masquerading as receivables.As a result, deposits required to sustain one bank's bloated assets aren't popping up at another lender. In S&P's estimates, for the banking system as a whole, the true loan-to-deposit ratio has increased to 80 percent, a 10 percentage-point jump since 2013.

...

Doing nothing won't be much of an option, either. Let a liquidity problem fester, and before long it morphs into a solvency scare. China may yet sidestep a full-blown credit crisis, but not before missing customer deposits make their absence felt even more acutely.



Comments: Be the first to add a comment

add a comment | go to forum thread