The Real Test Of China's Financial System Is Coming At The End Of This Year

Low Tide Tidal Wave

Nothing says cash crunch risk like a lumpy wave of loan maturities, and Chinese banks could face a real test of loan quality at the end of this year, if reports from Caing are correct.

Capital Vue:

A total of 40 per cent of China’s property development loans will expire at the end of 2010, reports Caing.com, citing an unnamed source from a large state-owned bank. According to the source, the financing costs of property developers rose by between 20 per cent and 30 per cent after the execution of the government’s tightening policies.

The source said the average debt-asset ratio of listed property developers is 60-70 per cent at present.

The source added that property development loans currently account for 60 per cent of total bank loans being granted.

It’s hard to hide bad loans when they mature since a troubled borrower either pony up the cash or refinance at a manageable interest rate. Yet at the same time, should Chinese bank balance sheets surmount this end of 2010 hurdle it could prove that concerns in regards to the financial system have been overdone.

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