China Banks

Hmm will this be the start of another black swan event?

Trust that the Chinese will determine the colour of the animal they like...

No worries...

(06-09-2014, 08:59 PM)funman168 Wrote: Hmm will this be the start of another black swan event?

Fri, Sep 12 2014
SHANGHAI (Reuters) - An off-balance-sheet credit product default has left a small Chinese bank on the hook for 4 billion yuan ($652.3 million), the latest default to hit the shadow banking sector, the official People's Daily said in a report on Friday.
The default comes amid a wave of reports in domestic media on Chinese banks and brokerages struggling to make payments on shadow banking products.
The popularity of off-balance-sheet products has exploded in recent years, with banks and trust firms marketing them as high-yielding alternatives to bank deposits, but analysts warn that the risk of defaults is rising as the world's second-largest economy slows.
Evergrowing Bank guaranteed the repayment of 3.7 billion yuan of principal and 300 million of interest payments under off-balance sheet products issued by one of its shareholders and an affiliated company, the paper, a mouthpiece of the Chinese Communist Party, said on its website. That sum accounts for 57.8 percent of the lender's 2013 net profit, it added.
Reuters was unable to immediately reach Evergrowing Bank for comment.
"Due to liquidity issues the enterprises cannot repay the debt, so to protect its reputation Evergrowing Bank must in accordance with the terms of a previously signed contract pay compensation," the paper said, without providing details on the source of its information.
Evergrowing Bank set up an asset management scheme via a brokerage in August last year, selling products to, among others, Bank of Tianjin, Jinan Branch and Tianjin Binhai Rural Commercial Bank, the report said.
The Bank of Tianjin paid 1 billion yuan for off-balance-sheet products, while Tianjin Binhai Rural Commercial bank paid 2.7 billion yuan in two tranches.
The products were due to be repaid by the shareholder and affiliated company at the end of August. Currently, it is unclear where the 3.7 billion yuan held by the shareholder and affiliated company has gone, the paper said.
At the end of 2013, the bank's shareholder, an investment company held by a Chengdu conglomerate Mind Group, owned 267 million shares in the bank, amounting to a 3.28 percent stake.
The bank has set up special purpose groups to investigate the risks involved. The Shandong authorities and provincial government are also looking into the matter, the paper said.
ANZ Research estimates that China's shadow banking sector may have reached around 33 trillion yuan by mid-2014, the equivalent of around 58 percent of 2013 GDP or 20 percent of total bank assets.
Chinese trust firms are increasingly warning of possible default on wealth management products.
(Reporting by Engen Tham and Clark Li; Editing by Jacqueline Wong)

So if half of shadow banking is wiped out, 30% of China GDP will be poof and the world will be in recession with China

via Xperia Z1 with Android 4.4.4 running tapatalk.

China injects $90bn into banks
LINGLING WEI THE WALL STREET JOURNAL SEPTEMBER 17, 2014 11:38AM

CHINA’S central bank is injecting 500 billion yuan ($90 billion) into the country’s five major state-owned banks as it moves to counter a worse-than-expected slowdown in the world’s No. 2 economy, according to a senior Chinese banking executive.

The size of the injection, which will be in the form of a three-month, low-interest-rate loan to the banks, is similar to a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China.

The move shows that Beijing is continuing to use targeted measures — as opposed to a broadbrush stimulus plan — to spur the economy. Officials at the Chinese central bank have been arguing that more drastic easing, such as a cut in interest rates, might cause a flood in lending that would worsen China’s debt problems and put the economy at greater risk.

The PBOC will pump 100 billion yuan each into Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications via the central bank’s standard lending facility, said the banking executive, who was briefed on the decision.

While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said.

The move follows a raft of disappointing economic data in August that show China’s economy is worsening rapidly despite targeted easing and other stimulus measures taken by Beijing early this year.

“We expect Beijing to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and restabilise growth, but the chance of universal rate cuts gets smaller,” analysts at Bank of America Merrill Lynch said in a research note. “We expect short term rates and longer term yield to fall, the economy to benefit, and markets to respond positively to this injection.”

Are these journalists trained to have financial sense or not?

"While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said."

What kind of nonsense is this? How could a 3-month short term loan to the commercial banks to be used to extend long term loans to the economy? The commercial banks have to pay back to PBoC in 3 months, but can they collect long term loan to the economy?


Obviously, PBoC does not trust the smaller banks any more or the mega banks are in need of short term liquidity. However, given the low interest rate and adequate reserve of mega banks, it is unlikely the latter. Apparently PBoC only wants to deal with the mega banks which can withstand the coming volatility and let the smaller banks borrow "narrow money" from interbank market if needed at a market rate presumably higher than the interest rate charged to the mega banks. It means that the financial market is in a liquidity shortage or expects a liquidity shortage, be it mega banks or other banks.

It is a confidence vote to the mega banks from PBoC.

(17-09-2014, 01:24 PM)freedom Wrote: Are these journalists trained to have financial sense or not?

"While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said."

What kind of nonsense is this? How could a 3-month short term loan to the commercial banks to be used to extend long term loans to the economy? The commercial banks have to pay back to PBoC in 3 months, but can they collect long term loan to the economy?


Obviously, PBoC does not trust the smaller banks any more or the mega banks are in need of short term liquidity. However, given the low interest rate and adequate reserve of mega banks, it is unlikely the latter. Apparently PBoC only wants to deal with the mega banks which can withstand the coming volatility and let the smaller banks borrow "narrow money" from interbank market if needed at a market rate presumably higher than the interest rate charged to the mega banks. It means that the financial market is in a liquidity shortage or expects a liquidity shortage, be it mega banks or other banks.

It is a confidence vote to the mega banks from PBoC.

Yup. It is an unlevel playing field.
The big 4 will dominate, and there will likely be eventual consolidation for the smaller players

I think they are combating shadow banking by reducing the liquidity through raising the banks' RRR earlier on. In doing so, it affected everyone, not only the guilty ones.
If some of these new money is "channel" again to the guilty parties, it will not be able to kill the shadow banking.
I think that is the reason they are NOT relaxing the RRR but give out temporary loans to the big 5 banks and hopefully control where these money will be loaned out by the banks. The private and small businesses are the ones that borrowed heavily through the shadow banking arrangement.

PBoC manages monetary policies. It does not exactly do much regulatory oversight on commercial banks.

Shadow banking or not, it is mostly up to CBRC, the regulatory body of commercial banks.

You are right. Banks will be ultimately the decision maker as they are responsible to return these monies, NPL or not.
So, it is a "commercial" decision as they put it.
I remember about the RBA cutting rates and the Governor putting in the statement that he hope the Banks will pass on the reductions to the borrowers.
Central Banks do have their hands tied in a way. Commercial Banks are really the Kings as the regulatory body is really afraid that the Banks fail and needed to be rescued.
We have seen it before in many countries after the GFC. Even in Singapore, Govt have to guarantee the deposits whereas the Banks takes all the profits happily.

Me No Worry attitude.