Credit pro­files of China’s top firms to worsen: S&P

The Sun (Malaysia) - - SUNBIZ -

HONG KONG: Ris­ing debt lev­els will worsen the credit pro­files of China’s top 200 com­pa­nies this year, re­quir­ing the coun­try’s banks to raise US$1.7 tril­lion (RM7 tril­lion) in cap­i­tal to cover a likely surge in bad loans, S&P Global said in re­ports pub­lished yes­ter­day.

The study sees lit­tle scope for im­prove­ment in 2017 amid wors­en­ing lever­age and sub­stan­tial ex­cess ca­pac­ity in al­most all sec­tors. Seventy per­cent of the com­pa­nies sur­veyed were state owned, com­pris­ing 90% of the sam­ple com­pa­nies’ debt.

S&P es­ti­mated the prob­lem credit ra­tio at Chi­nese banks was 5.6% at the end of 2015. In a down­side sce­nario of un­abated credit growth, that ra­tio could worsen to 11-17%.

In such a sit­u­a­tion, banks would need as much as US$1.7 tril­lion in re­cap­i­tal­i­sa­tion funds by 2020. Even un­der a base-case sce­nario, they would re­quire US$500 bil­lion.

S&P ex­pects China’s gov­ern­ment to con­tinue to al­low rapid credit growth over the next 12-18 months be­fore at­tempt­ing to rein it in, im­ply­ing that risks would heighten in one to two years’ time.

Debt has emerged as one of China’s big­gest chal­lenges, with the coun­try’s to­tal debt load ris­ing to 250% of gross do­mes­tic prod­uct (GDP).

Ex­ces­sive credit growth in China is sig­nalling an in­creas­ing risk of a bank­ing cri­sis in the next three years, the Bank of In­ter­na­tional Set­tle­ments warned re­cently.

The In­ter­na­tional Mone­tary Fund has warned China its credit growth is un­sus­tain­able, with cor­po­rate bor­row­ers sit­ting on US$18 tril­lion in debt, equiv­a­lent to about 169% of GDP. – Reuters

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