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Subprime to sour China bank assets: economist
2008-01-22
China's banks will suffer a rise in non-performing assets due to the U.S subprime crisis and domestic credit tightening, a senior economist said in remarks published on Tuesday amid mounting concern about the industry. Zhong Wei, an economics professor at Beijing Normal University, also told the official Financial News that stock market volatility would increase. "With the spreading of the U.S. subprime crisis and a slew of tightening measures to stop economic overheating and rising inflation, the bad assets ratio in the banking industry and the risk of fluctuations in the capital markets is growing," Zhong said. The non-performing loan ratio of major commercial lenders -- the large state lenders plus 12 joint-stock banks -- fell to 6.7 percent at the end of 2007, down from 7.5 percent at the end of 2006. But steps to squeeze the brakes on rampant property development, part of efforts cool the economy, will probably put thousands of developers and construction firms out of business, resulting in more bad loans, analysts say. Concern is rising in Beijing over the impact of the U.S. subprime crisis on the banking sector. Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission, said in a statement on Monday that commercial banks would face bigger credit risks this year partly because of the subprime crisis. And Merchants Bank (3698.HK) President Ma Weihua told Reuters in an interview that bank earnings would probably be hit by subprime and Beijing's economic cooling measures. Banking sources have said that Beijing has placed strict quotas on banks' lending in 2008, limiting the amount they can lend each quota. Bank of China (3988.HK) might post a 2007 loss because of a big write-down on billions of dollars of U.S. subprime-related investments, the South China Morning Post reported on Monday. The bank has said it held $7.95 billion of subprime-related assets as of the end of September. Fears that the U.S. economy is headed for recession drove most Asian stock indexes sharply lower on Tuesday for the second day in a row. Zhong said the risks, together with the possibility of capital flight, underscored the need for a plump cushion of foreign exchange reserves. However, he said China's $1.53 trillion stockpile of reserves was still more than enough. (Reporting by Langi Chiang; Editing by Alan Wheatley and Dominic Whiting)
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