1 2004 15 estimated by li hailin ceo dongdu

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Unformatted text preview: on Aug. 18, 2006. While these measures have managed to curb over-investment and slow year-over-year GDP growth, the excessive credit expansion has resulted in an increase in NPLs at major banks during 2004. With these cooling-down measures, the bank credit was reduced and the price of real estate fell. The huge buildup of property loans has turned to be piles of new NPLs in the system. It is estimated that the new NPLs resulted from property loans might amount to RMB 649.4 billion by 200715. The figure reported by Moody’s indicates that default rates on loans to developers are already ranging from roughly 8% to 12%16. Figure�5,�Selling�Price�Index�of�Houses,�1999-2004 (preceding year = 100) 112 109.7 110 108 106 103.7 104 102 100 100 101.1 104.8 102.2 98 96 94 1999 2000 2001 2002 2003 Source: China Statistical Year Book, 2005 14 “Interest rise aims at cooling property sector”, China Daily, Dec. 1, 2004 15 Estimated by Li Hailin, CEO, Dongdu International Group 16 Banking on China’s Reform, Mckinsey Quarterly 2004 Non-Performing Loan of China’s Banking System 151 Figure�6,�Shanghai�Selling�Price�Index�of�Houses,�1999-2004 (preceding year = 100) 140 120.1 120 100 98.6 104.4 107.3 2001 2002 115.9 80 60 40 20 0 2000 2003 2004 Source: China Statistical Year Book, 2005 VI.�Conclusion In the last few decades, China has established a huge banking system which intermediates around 75 percent of the nation’s capital and has made China’s financial depth double in the last decade. However, during the transition from planned economy to market economy, a large volume of non-performing loans has been generated, which has threatened the sustainability of the banking system. Chinese NPLs is mainly the result of extensive policy lending, low efficiency of SOEs, weak corporate governance and poor operation skills of the banks, and the business cycles. Chinese government has taken a lot of measures to solve NPLs, including transfering NPLs to asset management companies, recapitalizing the SOCBs, establishing the CBRC, incorporating strategic investors, initial public offerings, and so on. Although NPL ratio of SOCBs has been reduced significantly, Chinese banks continue to make astounding numbers of questionable loans atop the existing pile with the economic overheating initiated in 2002. The Chinese regulators must, therefore, go beyond merely fixing the “stock” problem of NPLs in the financial system and confront an additional source of instability: a flow of new bad debt. Any failure by regulators to control these bad lending practices may put China’s future prosperity at risk. To control the creation of new bad loans, i.e. the NPL “flow” problem, the regulators must introduce better corporate-governance practices to curb the ability of influential organizations and people to meddle in the lending decisions of banks, improve their risk-management practices, and limit fraud. Banks must recognize their new problem loans more rapidly and must adapt 研 究 所 年 報 152 and manage their loan portfolios by the lights of explicit, world-class credit-risk-management guidelines and strictly enforce compliance. Reference Brian Bremner, “Banking on China’s Reforms,” Business Week, Feb. 6, 2006. Diana Farrell, Susan Lund, and Fabrice Morin, “How financial-system reform could benefit China,” Mckinsey Quarterly, 2006 Ernst & Young, “Non-performing Loans in China,” Annual Review, 2003. Fung, Ben, and Guonan Ma, “China’s Asset Management Corporations,” Bank of International Settlement, Working Papers No. 115, August 2002. Gordon M.J., “Is China’s Financial System Threatened by Its Policy Loans Debt?” Journal of Asian Economics, 2003 (14). Mckinsey Global Institute, “Putting China’s Capital to Work: the Value of Financial System Reform,” May 2006. Norton, Patrick, and Howard Chao, “Mergers and Acquisitions in China,” O’Melveny & Myers LLP, April 2003. Peiser, Richard, and Wang, Bing, “Non-performing Loan Resolution in China,” Journal of Real Estate Portfolio Management, 2002. Wang Yijiang and Tian Guoqiang, “China Banking Industry: Reform Dilemma and the Role of Foreign Capital,” Comparative Study, 2003 Issue 10 Ye, Chen, and Qingguo Zhai, “Effect of Debt-Equity Swap on Reform of State-Owned Enterprises from the Angle of Company Management,” School of Business Management, Liaoning University of Petroleum and Chemical Technology, November 30, 2001. Zhang Yuming, Information Disequilibrium and Non-performing Loans: The Comparative Analysis Based on Japan and China, Sanlianc Press, 2001 Zhao Yi, The Forming and Disposing of Non-performing Loans of State-owned Commercial Banks in China, China Price Press, 2001 Zhong Wei, Ba Shusong, Zhao Xiao and Gao Qinghui, Embarrassment of China’s Banking Industry, https://1dnn.com/03jlj100aHR0cDovL3d3dy5wZWFjZWhhbGwuY29tL25ld3MvZ2IvY2hp bmEvMjAwMy8wNS8yMDAzMDUyODIxMjI-&&.shtml_May 28_2003....
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This document was uploaded on 03/12/2014.

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