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Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data
Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data
Back in March, we noted that decelerating economic growth and bad debt are taking a toll on profitability at China’s largest banks, leading them to slash payouts to shareholders.
“Particularly hard hit is ABC, which saw its non-performing loans jump 25bps Q/Q,” we observed, adding that “NPLs for loans made to manufacturers more than doubled that number, rising 54bps sequentially.” That figure underscores the degree to which China’s transition from an investment-led, smokestack economy to a model driven by consumption and services is weighing heavily on industry and in turn, on banks that lend to the manufacturing sector.
Although NPLs have been rising for some time in China, determining the true extent of the problem is largely impossible due to Beijing’s “management” of bad loans. As we outlined in “How China’s Banks Hide Trillions In Credit Risk,” there’s no way to know how pervasive Beijing’s practice of forcing banks to roll-over problem loans truly is, meaning that even if we ignore the fact that quite a bit of credit risk is obscured by the practice of shifting it around, moving it off balance sheet, and reclassifying it, (i.e. if we just look at traditional loans) it’s still difficult to know what percentage of loans are actually impaired because it’s entirely possible that a non-trivial percentage of sour debt is forcibly restructured and thus never makes it into the official NPL figures.
Indeed, the fact that NPLs are remarkably similar across banks suggests the numbers are, much like China’s GDP data, “smoothed out.” That said, a look at “special mention” loans and overdue loans can help to paint a more accurate picture although the figures still look grossly understated.
Source: Fitch
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Is The Fed Still Fabricating Loan Creation Data? Bank Of America Would Like To Know
Is The Fed Still Fabricating Loan Creation Data? Bank Of America Would Like To Know
Just under a year ago, when looking at aggregate loan creation by America’s banks, we stumbled upon something strange: there was a massive discrepancy between what the Fed, in its weekly call reports, said was weekly US loan issuance – which the then bulls gloatingly announced was rising and thus a confirmation of US growth – and what the actual banks reported.
This is what we reported:
One of the more bullish “fundamental” theses discussed in recent weeks, perhaps as an offset to the documented record collapse in mortgage origination – because without debt creation by commercial banks one can kiss this, or any recovery, goodbye – has been the so-called surge in loans and leases as reported weekly by the Fed in its H.8 statement. Some, such as the chief strategist of retail brokerage Charles Schwab, Liz Ann Sonders, went so far as to note that this is, to her, the “most important chart in the world.”[S]ince the Fed’s data is sourced by the banks themselves, what the Fed is representing and what the banks report quarterly should be in rough alignment. Unfortunately it isn’t.
As the chart [above] shows, in the first quarter, of the Big 4 banks, only Wells Fargo reported an increase – a tiny $4 billion to be exact – in its loans and leases portfolio. All the other banks… saw a decline in their loans and leases holdings.
Our question then: “is the Fed fabricating loan level data?”
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