2014-12-01

Bad Debts Still Mounting At Chinese Banks

The property market has looked stronger in October and November, but banks are still seeing bad loans climb. Banks are quickly moving bad loans off the books before they even hit the books, dubbing them "dark accounts." According to at least one insider, the properties attached to these loans are sometimes good assets, but the company is faltering due to poor management. Since many firms use real estate as collateral, property is falling into the banks' hands due to operational difficulties in the company's core business. The problem here is that as the economy weakens, bad loans pile up and this brings more real estate onto the market, forcing down prices.

When the credit bubble was inflating, businesses purchased real estate in order to obtain credit and fund their business. This helped grow the real estate sector, fueling more borrowing and expansion in real estate related industries such as steel and glass. As the economy slows and rebalances away from real estate, businesses cannot repay their loans and the real estate goes to the bank. The bank auctions the land, pushing down prices and worrying other banks with similar borrowers who offered similar collateral. Tighter credit conditions slow the real estate sector further, pushing more companies into default, which puts more properties on the market, etc.

Yet another reason why China is quickly putting together the deposit insurance policy.

iFeng: 房地产坏账深水潜伏 楼市继续下行或引爆风险

No comments:

Post a Comment