Rumours About Bad Bank Debts In China Spark Sharp Fall In Asia, Dragging Down Aussie Dollar

Photo: Godzilla (1954)

The Australian dollar is getting a bit of a smoking this afternoon after concerns emerged about a possible wave of banking defaults in China.

One bank wrote off around $US3.65 billion in bad debt today and there are rumours that there’ll be similar action at other Chinese banks. It’s having a knock-on effect on Asian markets, with the Nikkei down 1.5% and Shanghai down almost 1.2% at lunch.

Bloomberg reported:

Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. That didn’t pare first-half profits, which climbed to a record $76 billion, as provisions were set aside in earlier periods when the loans began souring.

Erasing the worst of the bad debts may allow the banks to mitigate a surge in nonperforming-loan ratios amid rising defaults in the world’s second-largest economy. China has eased rules for writing off debt to small businesses since 2010 and policy makers are pushing the lenders to increase risk buffers following an unprecedented credit boom that began in 2009.

“The banks and the regulators’ interests are aligned in speeding up write-offs,” said Ma Kunpeng, a Beijing-based analyst at Credit Suisse Founder Securities Ltd. “This prepares them for a rainy day.”

The Aussie dollar is down around 2% against the Yen.

Here’s the AUD/USD chart from today:

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