Turning the channel from the civil war


Lenders are vulnerable to the People’s Bank of China’s campaign this year to restrain money-market liquidity, pushing up banks’ cost of funding. The corporate sector, once a dominant borrower, is mired in high debt, weak demand, and capital controls—a policy to defend the yuan—limiting overseas expansion. These factors are showing up in sharply falling net interest income—the difference between what a bank pays and earns in interest. Last year the measure fell 7.1% at ICBC and 8.7% at both Construction Bank and AgBank. Interest once accounted for 90% of a Chinese bank’s income. Now, it is about 70% and falling.

Noninterest income, while growing, is far too small to make up for the shortfall. To boost profitability, banks have discarded large volumes of bad loans and lowered the amount of cash they set aside to weather defaults. Three years ago, banks were setting aside cash buffers two to three times the volume of their bad loans, well above the state-prescribed minimum of 150%. Most lenders drastically cut the coverage last year; ICBC set aside 136.7%, breaching the guideline entirely. Construction Bank and Bank of Communications Co., the sixth-largest, posted levels fractionally above the minimum. The three biggest lenders said they collectively wrote off and transferred out 190.5 billion yuan in bad loans last year, compared with 136.48 billion yuan in 2015.

We’re very interested in China of course and hope to be doing some serious business there soon. That’s part of the reason you see these things as opposed to other writings. But also it’s because we can’t deal with the civil war between town and country in the US. Big city mayors strut like peacocks and say they won’t enforce laws on the books, and will stop the feds from doing so. Huh?

One Response to “Turning the channel from the civil war”

  1. feeblemind Says:

    Really good read from Wretch at BC.

    The Sovietization of American Politics


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