Chinese Banks and the Movement of Capital Through the Revolving Door

April 24, 2012

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“Frankly, our banks make profits far too easily” ~ Premier Wen Jiabo

Dealbook penned an article on Chinese banks, a favorite topic here.

Authorities, aware of the potential for a wave of bad loans, has pressured banks to raise capital.

“It’ll be interesting to see if these banks are able to fleece foreign investors one more time and raise capital. Or rather, at what price they will be able to do so.” ~ HS on 9/26/2011

Chinese banks attracted $51.4 billion last year; however, rather than recapitalizing, these funds are funding massive dividend payouts, says Nicholas Lardy from the Peterson Institute.

“There’s an awful lot of money just going round and round from one pocket to another,” he added, “giving the appearance of strength when it’s really not there.” ~ Red Capitalism author Fraser Howie

The so-called Big Four are expected to report that first-quarter profit rose 10 to 26 percent thanks to a lending spree that has boosted the assets to roughly that of the German, French, and British economies combined. The risk is some portion of these loans is not repaid.

“For the first time, a large number of Chinese banks are beginning to face cash pressures,” Charlene Chu, a banking analyst at Fitch Ratings. “It is because of this cash constraint that the forthcoming wave of asset quality issues has the potential to become uglier and more destabilizing than in previous episodes of loan portfolio deterioration.”

Source:

China’s Biggest Banks Are Squeezed for Capital ~ DealBook

Premier Wen said the same thing about profits at property developers. It’ll be interesting to see for how long he leaves them drowning before coming in to save – it could be much later than many think.

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