IMF warns of risks to Chinese banks
The International Monetary Fund warned today that China’s banks face growing risks that might hamper growth, adding to concern about the world’s second-largest economy amid Europe’s debt crisis.
The IMF’s comments add to warnings by industry analysts that state-owned banks face a possible rise in bad loans and other problems after a lending boom that helped China rebound quickly from the 2008 global crisis.
China’s economy expanded by 9.1% in the quarter ending in September but growth is forecast to slow as exports weaken due to a slump in US and European demand and a boom in real estate prices cools.
“Despite ongoing reform and financial strength, China confronts a steady buildup of financial sector vulnerabilities,” the IMF said in a report based on stress tests of China’s 17 biggest state-owned lenders that it conducted with Chinese regulators.
The warning comes as anxiety about Italy’s debts and the threat of renewed recession in developed economies disturbs financial markets.
Japan reported yesterday that its economy grew in the latest quarter for the first time since the devastating March 11 tsunami. But Asian stock markets fell today on enduring concern about the ability of Italy and Greece to pay their debts.
Beijing could reduce its banking risks by making the industry more market-oriented and reducing the government’s dominant role in making lending decisions, the IMF said.
China’s banks are seen as among the world’s strongest after they avoided the credit problems that battered Western institutions. But industry analysts say they face a possible rise in bad loans due to heavy lending during the crisis.
China’s banks could face risks if real estate prices fall sharply or unpaid loans increase due to crisis-related lending, the IMF said. It said other dangers could arise from growing imbalances in a Chinese economy that relies heavily on exports and investment to drive growth despite government efforts to boost domestic consumption.
