Loan Practices of China’s Banks Raising Concern

[JayAtl]

SHANGHAI — Text message solicitations began arriving on the mobile phones of many of China’s wealthy last month, promising access to lucrative wealth management products with yields far above the government’s benchmark savings rate.


One message read: “China Merchants Bank will issue a high interest financing product starting from June 28th to 30th. The product will be 90 days with a 5.5% interest rate. Please call us now.”

A day later came another. “Warm reminder: The interest rate of yesterday’s product has been raised to 6%. (Product duration is 90 days). There is limited access to this product. First come first served.”

The offers are not coming from fly-by-night operators but some of China’s biggest banks. They are raising huge pools of cash to finance a relatively new and highly profitable sideline business: lending outside the scrutiny of bank regulators.

The complex way they go about making off-the-balance-sheet loans is at the heart of China’s $6 trillion shadow banking industry, which the government is now trying to tame. Efforts to rein in the dodgy lending practices rattled stock markets worldwide in late June.

China’s regulators — and a fair number of economists, policy makers and investors — worry that legitimate banks are using lightly regulated wealth management products to repackage old loans and prop up risky companies and projects that might not otherwise be able to borrow money.

Analysts warn that shadow banking is helping drive the rapid growth of credit in a weakening economy, which could lead to — in the worst situation — a series of bank failures. “This is the biggest uncertainty I’ve seen in my 18 years following the China market,” Dong Tao, an economist at Credit Suisse, said of shadow banking. “You don’t know how banks are deploying capital. And you don’t know the credit risks.”

What banks are doing, analysts say, is pressing customers to shift money from the old, regulated part of their operations — savings deposits — into the new, less regulated part consisting of high-yielding wealth management products that can circumvent government interest rate controls and be used to finance high-interest loans to desperate customers.

China’s leaders are so worried about credit risk that last month the country’s central bank tightened credit in the interbank market, where banks typically go to borrow money from other banks.

The move sent short-term interest rates soaring, and for a day at least, created a debilitating credit squeeze.

http://www.nytimes.com/2013/07/02/b...-of-chinas-banks-raising-concern.html?hp&_r=0

 

[ChinaToday]

braindead please read

China's banks go from strength to strength

China's banks go from strength to strength - World - The Banker

 

[Bobby]

Shadow Banking

 

[JayAtl]

1. A developer approaches a bank, asking for a loan. Since the developer is unsecured, it is willing to pay a high rate of 9 percent. The bank agrees, but it must first raise the funds to proceed.

2. To finance the loan, the bank entices depositors to make large deposits by promising them a return of 6 percent. Because that exceeds the 3.3 percent maximum allowed by China, the bank sets up a special wealth management product, which it offers via a trust company to keep the transaction off the bank’s books

3. Again working via the trust company, the bank, now armed with the money from depositors, arranges the loan to the developer. The developer pays 9 percent interest, plus a large fee. The bank pockets the fee and the difference between the 9% it gets from the developer and the 6 percent it pays to depositors. Both sides of the transaction are kept off the bank’s books — but if the developer fails, depositors could be left in the lurch.

braindead please read

China's banks go from strength to strength

China's banks go from strength to strength - World - The Banker

in Jan 2013 the faking and fudging was still not caught... now it is.

 

[ChinaToday]

1. A developer approaches a bank, asking for a loan. Since the developer is unsecured, it is willing to pay a high rate of 9 percent. The bank agrees, but it must first raise the funds to proceed.

2. To finance the loan, the bank entices depositors to make large deposits by promising them a return of 6 percent. Because that exceeds the 3.3 percent maximum allowed by China, the bank sets up a special wealth management product, which it offers via a trust company to keep the transaction off the bank’s books

3. Again working via the trust company, the bank, now armed with the money from depositors, arranges the loan to the developer. The developer pays 9 percent interest, plus a large fee. The bank pockets the fee and the difference between the 9% it gets from the developer and the 6 percent it pays to depositors. Both sides of the transaction are kept off the bank’s books — but if the developer fails, depositors could be left in the lurch.

do go read this article too

China's ICBC emerges world's largest bank, overtakes American rivals news - See more at: domain-b.com : China's ICBC emerges world's largest bank, overtakes American rivals

 

[ChinaToday]

try read this article see if that help you

China: four giants and number one in the world

Home to the largest bank in the world by Tier 1 capital – Industrial and Commercial Bank of China – and three other members of the top 10, China's dominance at the top of the global banking scene is now there for all to see.

China has been marching up The Banker’s Top 1000 World Banks ranking and now a bank from the country has finally reached the top spot. Industrial and Commercial Bank of China (ICBC) is the world’s number one bank in terms of Tier 1 capital, which rose 14.72% to $160.65bn in 2012.

This top ranking represents the culmination of a steady climb by ICBC. In The Banker's 2010 Top 1000 ranking, ICBC was seventh, and in 2011 it edged up to sixth. Last year ICBC finished in third place, knocking HSBC from third to fourth place in the process. Now ICBC has overtaken JPMorgan Chase, which held second place from last year, and has swapped places with Bank of America, which is now third in the global rankings.

The big four Chinese banks – ICBC, China Construction Bank (CCB), Bank of China (BoC) and Agricultural Bank of China (ABC) – remain at the top of the Chinese rankings and they are all among the world’s top 10 banks by Tier 1 capital. BoC and ABC have remained in the same global positions that they occupied in the 2012 ranking, of ninth and 10th respectively, while CCB moved up from sixth into fifth place.

In previous years, the presence of China's banks could not be ignored, both in terms of the size and the increase in Tier 1 capital. This year, the country's banks have attained even more of a global status: as well as the four representatives in the top 10, there are five in the top 25, and seven Chinese banks in the top 50.

There is a sizeable difference between the Tier 1 capital of the fourth largest bank in China, ABC, and the fifth largest. ABC’s Tier 1 capital is $111.49bn, while fifth placed Bank of Communications is $57.61bn. Although it has a smaller Tier 1 capital ratio when compared to the big four banks in China, Bank of Communications scored well among the country's highest movers. It ranks eighth in the country by this measure, with a Tier 1 capital increase of 37.78%. In the Top 1000 overall rankings, Bank of Communications ranks 23rd.

This year’s highest movers from China showed less dramatic Tier 1 capital increases than in the 2012 rankings. Last year’s highest mover boasted a Tier 1 capital growth of 626.24%, whereas this year’s highest mover in China – Bank of Hebei – registered a more moderate 90.19%. It is followed by Guangxi Beibu Gulf Bank with a 53.82% growth, and Hankou Bank, which had a Tier 1 capital growth of 47.79%.

China: four giants and number one in the world - The Banker

 

[JayAtl]

China Loses Control of Its Frankenstein Economy
China Loses Control of Its Frankenstein Economy - Bloomberg

The world has grown used to the idea that China’s leaders are masterful stewards of their gargantuan economy. They steered brilliantly around the iceberg of the 2008 financial crisis, maintaining growth of near-double-digit rates. So when People’s Bank of China chief Zhou Xiaochuan began clamping down on excessive liquidity last week, some observers viewed him as a Chinese Paul Volcker. Now that the worst was over, Zhou seemed to indicate, it was time for China to rein in lending and prevent a credit bubble from swelling.

Then reality intervened. After the overnight repurchase rate zoomed to a record 13.91 percent, Zhou had to back off, hastily injecting fresh funds to stem the turmoil. The chaos traumatized money markets. Some were dismayed by signs that Zhou would end the era of easy money in China. Others feared that he couldn’t.

ndeed, continuing unease this week underscores how limited Zhou’s powers actually are. Over the past decade, China’s economy has grown addicted to excessive credit growth, with state-owned banks encouraged to finance as many new skyscrapers, highways, airports, dams and ghost towns as needed to pump up gross domestic product. Free-flowing liquidity -- mostly to state-owned enterprises -- kept stocks and real estate buoyant, foreign investors bullish and China’s 1.3 billion people away from Tiananmen Square.

Zhou can’t cut off the money now without banks suffering from withdrawal. And the danger is that nobody really knows how healthy China’s giant, state-owned banks are, or how big its shadow-financing system has grown.

When Stephen Green of Standard Chartered Plc in Hong Kong called China’s credit system “a big black box, and it’s quite scary,” he wasn’t exaggerating.

Mystery Data
How can anyone trust that China is growing at a rate of 7.7 percent, as the government claims, when crucial variables in its data tabulation are a mystery? Bank of America Corp. economist Lu Ting in Hong Kong risked China’s ire by alleging its trade surplus was 1/10 the $61 billion it reported as of mid-May. The nobody-knows character of China’s credit system -- quantity, quality or excesses -- is even more worrisome.

The U.S. shadow-banking system, with its off-balance-sheet vehicles and murky dealings, helped drive world markets off the rails in 2008. Imagine the damage an entire shadow economy could cause if it unravels.

China’s leaders avoided bursting one bubble in 2008 by creating new ones. Yet China cannot forever delay its day of reckoning. Total credit may reach 200 percent of GDP this quarter, up from 130 percent in 2008. Mainland banks are currently adding assets at the rate of an entire U.S. banking system every five years.

Traditionally, Beijing has viewed opacity as a powerful tool for policing the channeling of funds between banks and companies.

That murkiness is now proving dangerous. The central bank needs to confirm it will rein in interbank liquidity, explain the means by which it plans to do so, and indicate what the endgame is. Its vague, boilerplate statements are only exacerbating distress in the markets.

At the same time, Zhou is fundamentally helpless: He cannot be truly effective unless the country’s top political leadership decides that the Communist Party is going to get out of the banking business. China needs to allocate capital less recklessly and price it according to economic reality, not according to the dictates of officials who profit from the current arrangement. If the government really wants to reduce the role of state-run companies in China’s economy -- as it should, because only a thriving private sector can increase innovation and competitiveness -- it must privatize the banks first.

Powerful Creature
Putting off that hard task has turned the Chinese economy into a Frankenstein monster. It’s a giant and powerful creature born of unorthodox experiments, and its makers are increasingly losing control.
No one envies Chinese President Xi Jinping and Premier Li Keqiang. They must manage a slowing economy and institute critical reforms, all without panicking the markets and destabilizing Chinese society. They should study the precedent set by former premier Zhu Rongji, whose efforts to modernize state-owned enterprises in the late 1990s put more than 40 million Chinese out of work but added much-needed balance to the economy.

Any shock therapy will be painful. And to be effective, it must treat the underlying problem, not just the symptoms. Otherwise, Zhou’s every effort to drain credit will only send waves of panic through the markets. He’s right that China’s Frankenstein needs to be stopped. But only its creators can do that.

 

[IndoUS]

^^Trade data (National Secret)

 

[JayAtl]

^^Trade data (National Secret)

Certainly does not follow international norms and is in-bred from cultural oddities of secrecy... they did this when they had the earthquake where 100,000 Chinese died and they kept pushing only a 1000 or so died OR when SARS came from china and they refused it, even jailed a prominent scientist in China who whistle blew it.

In china image is everything- honesty is is not allowed to circumvent an image crisis.

 

[JayAtl]

Two years ago or so when I joined PDF , I used to keep telling the Chinese that their real estate industry was going to find itself in a bubble. Every Chinese , 50 center et all- used to attack me_ and low behold 2 years later- finally their own govt acknowledge it

Then I said their export numbers were fudged...and lo behold their govt came out and said it was true.


Economists React: More Bad Manufacturing News
Economists React: More Bad Manufacturing News - China Real Time Report - WSJ

 

[gambit]

Two years ago or so when I joined PDF , I used to keep telling the Chinese that their real estate industry was going to find itself in a bubble. Every Chinese , 50 center et all- used to attack me_ and low behold 2 years later- finally their own govt acknowledge it

Then I said their export numbers were fudged...and lo behold their govt came out and said it was true.


Economists React: More Bad Manufacturing News
Economists React: More Bad Manufacturing News - China Real Time Report - WSJ

The flaws in their arguments, and I see the same flaws over and over, is that if the banks' size increases or largest, it is because the banks are doing something right, as in following legal, ethical, and financially sound methods. Not ever because a Chinese bank may be doing an 'Enron' out of sight. Only Western banks are ever dishonest.

 

[JayAtl]

The flaws in their arguments, and I see the same flaws over and over, is that if the banks' size increases or largest, it is because the banks are doing something right, as in following legal, ethical, and financially sound methods. Not ever because a Chinese bank may be doing an 'Enron' out of sight. Only Western banks are ever dishonest.

Right on. You see this from the character China Today. He lists the size of the bank but has no clue about real verifiable assets vs. virtual or fudged up assets. a typical by product of image first.