Chinese banks under pressure from investment withdrawals, NPLs
China’s ‘big four’ banks see stormy skies amidst the pull-outs of foreign investors while facing rising levels of Non-Performing Loans possibly by as much as 60% of their equity capital. November 17, 2011 | Timothy ShimThe recent mad scramble by financial institutions to raise capital in the face of tightening regulations has seen some divesting themselves of overseas investments. Earlier in October, the Chinese government intervened with the purchase of stock on China’s ‘big four’ - Agricultural Bank of China (ABC), Bank of China (BOC), the Industrial and Commercial Bank of China (ICBC), and China Construction Bank (CCB) – via state-owned Central Huijin Investment, in order to bolster falling share prices. Opacity in China’s NPL, both a source of infuriation and frustration to investors has hit the banking sector relatively hard. CCB is now facing the sale of 10.4 billion Bank of America Meryll Lynch (BAML) shares in it, valued at an estimated $6.6 billion, with an after-tax book value of $1.8 billion. CCB is not the only casualty, and just a week ago on November 9th, Goldman Sachs sold off 1.75 billion shares in the Industrial and Commercial Bank of China ICBC, which saw it raise $1.1 billion in proceeds and reducing its share in the bank from 2.9% to 2.4%. While the pull-out of sizable foreign investors is seen overall as a reaction by U.S. banks to beef up their capital, it also reflects on diminishing investor confidence in Chinese banks – primarily caused by bad loans as well as a slowing economy. China’s ‘big four’ has seen an average drop of 19% so far this year alone. Loan losses at Chinese banks may climb to levels of as much as 60% of their equity capital as real-estate companies and local governments fail to repay debts incurred following Beijing’s loosening of credit policies post 2008. ABC has shown bad debts accounting for 1.67% of total loans as of June this year - the highest non-performing loan ratio among the biggest lenders. ICBC chalked up 0.95%, BOC 1%, and CCB 1.03%. The situation has prompted the IMF to issue a warning in its first review of China’s banking system, with the report stating that “the impact of... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Capital & Strategic Issues, China, Risk and RegulationCapital & Strategic Issues,China,Risk and Regulation, Capital & Strategic Issues,China,Risk and Regulation, Keywords:Agricultural Bank Of China, Bank Of China, Industrial And Commercial Bank Of China, China Construction Bank, Bank Of America, Goldman Sachs Agricultural Bank of China, Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of America, Goldman Sachs
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