Pressure from Beijing to lend coupled with economic worries from borrowers has reportedly led Chinese banks to inflate their loan figures by adopting unusual practices.
Chinese banks are reportedly inflating their loan figures with unusual practices, according to a «Bloomberg» report citing unnamed executives at six mainland lenders. Methods include lending to companies and allowing them to deposit funds at the same interest rate or short-term financing arrangements between banks dressed up as new loans.
This follows increasing pressure recently by Chinese authorities to stimulate a slowing economy including a central bank statement on Monday calling on lenders to boost credit support for small and micro-sized enterprises, as well as other fields, underlining the need for a «sense of urgency». The People’s Bank of China also unexpectedly cut its key policy rate earlier this month alongside other forms of stimulus from Beijing.
Weak Outlook
In addition to reluctance from businesses and households to borrow, China’s banking system is also in the midst of an ongoing property crisis that includes developer defaults, mortgage boycotts and other issues.
In a worst case scenario, S&P Global Ratings estimates that 6.4 percent of mortgages are at risk – the equivalent of 2.4 trillion yuan ($350 billion) – while Deutsche Bank has an even more pessimistic forecast with at least 7 percent of home loans estimated to be at risk.
