Beijing’s pressure to lend, coupled with borrowers’ economic concerns, has reportedly led Chinese banks to inflate their lending numbers by adopting unusual practices.
Chinese banks have inflated their lending figures with unusual practices, according to a “Bloomberg” report quoting unnamed executives of six mainland lenders. Methods include lending to businesses and allowing them to deposit funds at the same interest rate or short-term financing agreements between banks disguised as new loans.
This follows mounting pressure recently from Chinese authorities to stimulate a slowing economy, including a statement from the central bank on Monday calling on lenders to step up credit support for small and micro businesses, as well as in other other areas, emphasizing the need for a “sense of urgency”. “. The People’s Bank of China also unexpectedly cut its key rate earlier this month, alongside other forms of stimulus from Beijing.
In addition to corporate and household reluctance to borrow, China’s banking system is also in the midst of an ongoing housing crisis that includes developer defaults, mortgage boycotts and other issues.
In the worst-case scenario, S&P Global Ratings estimates that 6.4% of mortgages are at risk – the equivalent of 2.4 trillion yuan ($350 billion) – while Deutsche Bank has an even more pessimistic forecast with at least 7% of home loans estimated to be at risk.