The flood of liquidity under the credit feast

The credit binge, which began at the end of last year, does not seem to have finished, but the research institute has sniffed indigestion. Moody's and the S & P have warned that the quality of new loans is worrying, and that if the economy does not recover quickly, it could cause a lot of bad loans.　　With liquidity flooding temporarily easing the plight of companies, non-performing loans will not grow much in the short term but may emerge in the next few years. However, due to strong assets, the analysis that the Chinese banks are not likely to get into full trouble.　　Even in trouble, the government, which is the biggest shareholder of the bank, is bound to bail out and become the final buyer of the credit feast. The slowing growth of lending continues to be analysed by Moody's, where a prolonged period of low growth will affect many industries, and more and more companies may not be able to afford bank loans.　　And why do banks lend heavily in such a situation? For that reason, S & P believes there are three reasons. First, the government exerts a strong influence on banks and encourages lending. Second, banks are confident of a quick recovery and are willing to lend a hand.　　Third, under the background of China's interest rate regulation, banks can offset the negative effects of net profit margin on profits by loan. However, the quality of these loans is worrying. The average quality of new loans this year was weaker than in the same period last year, the ratings agency said. This is because the bank's client base expands, but the quality drops. Many companies are still lending as financial indicators have deteriorated. At the same time, some enterprises have difficulty in obtaining loans or limited access, but now they have relaxed the standard, easy to obtain loans and even get too much credit.　　In addition, banks may have loosened lending standards for projects related to the stimulus package, as the government lowered the proportion of project capital.　　Can Banks digest? In the first half of this year, China's domestic bank credit growth reached a record 7.5 trillion yuan.　　What is the weight of the credit on the banks that the banks can digest? On average, the bank thinks banks should be able to digest. But only if our economy recovers quickly. According to the benchmark pressure scenario, the credit costs of China's banks in 2009-2011 (that is, the ratio of new credit provisioning costs to average loan balances) were as high as 1, 38%, 0.91% and 0.6%, which meant banks were better prepared for indigestion loans.　　In addition, the level of official spreads, although narrowed, is still at a healthy level, and the ability of banks to gain intermediate business income is rising. However, the digestion capacity of each bank is different. For banks with rising industry or regional concentrations, such as policy banks and grassroots banking institutions, including rural credit cooperatives, it expects potential credit losses to hit their already low profitability, leading to difficulties. Moody's analyzed that China's domestic economy has fallen from nearly 11% per cent growth in the past five years to an expected 7%-8% growth rate in 2009 as a result of the global recession, while some industries, such as exports, have fallen by 20%. and the economic model of China's export-driven growth no longer works, economic development must find new impetus. Domestically, despite a 4 trillion-dollar fiscal policy slowing the downturn, government investment alone is driving growth unsustainable. If household consumption and private investment cannot keep up, the economy will not be able to recover steadily. At the same time, the external environment is uncertain.　　Long economic growth will affect more industries in more and more regions, and as a result, more companies are struggling to repay.　　Will there be a big increase in non-performing loans? Even if credit risk rises, the bank is not likely to see a huge increase in non-performing loans in the next six to 12-18 months, the agency said. This is because strong credit growth has created ample liquidity for companies and signs of recovery in the economy.　　For many business loans, the bank will also be extended not to urge repayment. However, for the enterprises currently in trouble, loans can only play a temporary role in relieving stress. With the gradual decline in lending and the eventual suspension of loans by banks, there is still a risk of a jump in non-performing loans.　　In particular, loans to highly leveraged companies facing severe earnings pressures are likely to become problematic loans for banks in the coming years.　　Moreover, the inflationary pressures brought about by the surge in liquidity before the full recovery of the economy and the improvement in business operations are likely to force the government to change its policies, increase restrictions on lending and negatively affect lenders and banks. In general, both the S & P and Moody's agree that non-performing loans will not increase in the short term, but will the government save banks once they emerge? The answer is likely to be. China's government is an interventionist government that is likely to mobilize resources to help key banks, such as the four big state-owned banks, the agency analyzed. Moreover, the Government is in fact the largest shareholder of Chinese banks, and the main reason for the surge in credit is the government's encouragement of lending in support of economic development.　　As a result, the end of the credit binge is likely to remain the closure of the government's bill. Newspaper reporter Sinling Intern She Fengyi