Report: China’s Toxic Loan Debt May Be Even Higher Than Estimated

China’s Toxic Loan

According to the international ratings agency, a part of the country’s total loan pool, its non-performing loans, could be about 15 to 21 percent higher. This would put the NPL ratio for commercial loans just under two percent ending June 2016.

The report said there is a high change the bank’s NPL ratios will keep increasing over the near and long-term. Signs of stress are already being seen and felt, especially where banks are offloading loans or writing them off compared to asset-management companies.

Fitch said in order to address the bad loan problem, there would be a capital shortfall of around $1.1 to $2.1 trillion, or about 20 percent of its economy on the higher end.

The agency said the capital gap might continue to rise another 13 percentage points by the end of 2018 if there’s no external or internal capital increase or wasteful credit continues rising.

Fitch said the country would need to address its corporate debt situation, but it would add pressure to the credit rating. Currently, China is rated A+ and has a stable outlook.

The Fitch report said an immediate resolution to the country’s credit problem is necessary. And, without it, it could lead to a rise in the general government debt.


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