The Strategist

Data on bad debts in China looks doubtful again

01/22/2018 - 11:01

Data on bad debts in China, which analysts and investors have long considered to be underestimated, once again tuned put to be doubtful after the bank regulator disclosed false reporting of a local lender, reports Bloomberg.

The Banking Regulatory Commission of China (CBRC) said that the Shanghai Pudong Development Bank Co., the country's ninth largest lender, located in Chengdu (a city in the southwest of China) falsified loan applications and provided unapproved funds to cover its "bad " debts.

In total, the branch issued loans for 77.5 billion yuan ($ 12 billion) to 1,493 shell companies. The CBRC found that the branch, which reported a zero volume of non-performing loans, overstated its revenues and forged other data to improve performance.

The regulator fined the bank's branch for 462 million yuan and said that its leaders will be held accountable. After the announcement of the CBRC, Shanghai Pudong Bank said it had reserved funds to pay fines in its financial results for 2017, and promised to strengthen compliance and internal control.

Shares of Pudong Bank on Monday morning fell by 2.9% during the bidding in Shanghai. This is the maximum intraday drop in the bank's shares since August.

This case raised new doubts about the accuracy of the financial and economic data provided by Chinese companies and even by local authorities.

This month, Inner Mongolia province joined the neighboring Liaoning province, recognizing the overstatement of key economic indicators, which led the head of the statistical bureau of China to check local data. Chinese President Xi Jinping previously said that officials should be "frank" when presenting reports.

Chinese creditors faced a growing amount of "bad" debts, after the financial system has been flooded with cheap loans for years to maintain economic growth. According to the CBRC, the share of non-performing loans remained unchanged at 1.74% as of September 30. However, CLSA Ltd. estimated the share of non-performing loans in 15-19% in 2015.

As reported earlier, following the annual Central Conference on Economic Work in December, the leaders of China promised "to fight to prevent and eliminate major risks, with an emphasis on preventing and controlling financial risks."

The conference participants did not repeat statements about direct debt reduction, but focused on the risks in the financial system.