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Essay on Finance Consumer Lending In China
Another big problem looms for China's rickety banks.
CHINA'S banks have been scrubbing hard, hoping to make themselves clean enough to attract foreign capital. If you believe official figures, their non-performing loan (NPL) ratio fell to 13.2% at the end of last year, from nearly 18% in 2003. None has scrubbed harder than the two big state banks being groomed for strategic investment and flotation: Bank of China (BoC) said last month that its NPL ratio was just 4.7%, and China Construction Bank (CCB) claims 3.7%. Independent data are also looking less gloomy. Standard & Poor's, a credit-rating agency, reckons 35% of loans will go sour, down from its previous estimate of 50%. This may help win round foreign banks, which have so far resisted taking stakes. Royal Bank of Scotland is said to be ready to pay up to $4 billion for up to a fifth of BoC, although the Edinburgh bank would not be drawn at its annual meeting on April 20th. There are also rumors that foreigners are preparing to buy a stake in CCB.
The banks' old bad debts are worrying enough. But potential investors should probably be more concerned about what has yet to appear in the books. Between the start of 2001 and early 2004, China went on an almighty credit binge. Bank lending jumped by 56% in 2003 alone, as the government first tried to shore up growth and then lost control of a racing economy before trying to rein it in last spring. At the state's behest, banks lent enormous sums for new factories, roads and airports, many of which will never make money.
However, for the first time they also lent hand-over-fist to individuals, deluging them with credit cards, mortgages and car loans in an attempt to make growth more balanced....
