The Chinese Market and Bad Loans
Chinese financial Regulator Talks about Bad Loans
Today the Chinese financial regulator said that the share of “bad loans” had stabilized at 1.75% of credit portfolios after growing for some years. Other, non-government sources suggest it is much higher, so this may be just a way of the officials to blur the issue seen as a big risk in China and encourage foreign investors to enter the Chinese market.
BMI Research (part of Fitch group) mentioned 20% of loans are “bad”, and generate losses of around 1,9 bn USD. It concludes that People’s Bank Of China will need to print money and recapitalize banks in order to win the battle with ’bad loans’. One of the local analytic houses claims that the official numbers may be right but deliberately sum up only a subset of loans, the ones not requiring any foreign operations. For now the markets are not focused on China as a global risk factor so may simply ignore the bad loans numbers from the regulator as confirmation of their current view on the country.
McDermott (Royal Bank Of New Zealand) Talks NZD
Mr. John McDermott, assistant governor in RBNZ said in an interview in Wellington that the RBNZ highlighted two alternative scenarios in its monetary policy statement and both of them were on downside risks to rates. He added that the market should have picked up this signal. Usually the central banks provide two scenarios, one to the upside and the second focused on the downside risk. However, Mr. McDermott said that it would have been very artificial in the current environment. According to the assistant governor, the surge in exchange rate was a “funny reaction” to the rate cut.
While the RBNZ doesn’t target the exchange rate, the longer it stays elevated, the more it damps inflation and makes it harder for the central bank to meet its mandate, McDermott said. The central banker added that the RBNZ will look at the exchange rates in upcoming weeks and may signal lower rates path if needed to push the NZD lower.
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