Wednesday, July 14, 2010

Another Reason Why The Chinese Banking Financial Strength Rating Is Just Beating Iceland & Kyrgyzstan.....

A follow up on Chinese Banking Financial Strength Rating Is Just Beating Iceland & Kyrgyzstan..... & "Enron-Esque Characteristics" Hiding An Even More Explosive Credit Growth In China .....

Als Nachschlag zu Chinese Banking Financial Strength Rating Is Just Beating Iceland & Kyrgyzstan..... & "Enron-Esque Characteristics" Hiding An Even More Explosive Credit Growth In China ......
Moody's average rating for their financial strength is D-. On that scale, only six countries are worse off, including Iceland and Kyrgyzstan.

Fitch goes aaaagh on Chinese securitisation FT Alphaville

Frightened with Fitch on Wednesday. The rating agency has looked at where Chinese lending is disappearing to — only to reiterate that rather too much is flowing into the black hole of informal securitisation.

A very black hole, as Fitch explains (our emphasis):

Fitch believes the vast majority of these transactions are not publicly disclosed by Chinese banks, and few, if any, traces of the loans remain in financial statements. The growing popularity of this activity is increasingly distorting credit growth figures at an institutional and system level, resulting in pervasive understatement of credit growth and credit exposure. Consequently, Chinese banks’ loan loss reserves and capital are more exposed to credit losses than current data suggests.

Adjusted for informal securitisation activity, Fitch estimates that the net amount of new CNY loans extended in H110 was closer to CNY5.9trn, or 28% above the official figure of CNY4.6trn. While this difference may seem small when compared to the total stock of CNY loans for banks involved in this activity (roughly CNY34trn at end-June 2010), on a flow basis the volume of credit being shifted off balance sheets in recent times has been large and rising. Activity also is largely concentrated among just a few dozen banks, and institution-specific exposure is often much higher.

Some banks very actively engaged in transactions last year are showing up in 2010 data as minimally involved, yet the bank’s own salespeople (responding to Fitch’s enquiries) state that business remains as strong as ever. Meanwhile, private placements of products to institutional investors are becoming more commonplace, most of which are never disclosed to any entity but the CBRC.

Because of this worsening in disclosure, data from third-party providers is capturing less and less transaction flow, with as much as 40% of deals in H110 going uncaptured, versus less than 10% prior to end-2009.

Although broadly similar, informal securitisation in China differs considerably from traditional securitisations in some critical aspects: asset pools are usually very heavily concentrated; the lack of a secondary market means investors typically must hold positions until maturity; there is no tranching based on credit risk; and the roles of loan originator, product distributor, custodian, and loan manager are frequently commingled, and in practice sometimes all played by a single bank.

Fitch on Chinese Banks; 7/2010

H/T Zero Hedge

China’s trust factor FT Alphaville

First, cash-rich depositors were frustrated with low [bank] deposit rates (around 2% for a one-year deposit), and trust companies were happy to offer 4% or thereabouts, principal guaranteed.

Keep in mind that even the reported CPI is running close to 3 percent......With this kind of "alternatives" in search for yield and a housing bubble already in place ( see Andie Xie: "China's Property Market Is One Of The Biggest Bubbles Ever..." it is no wonder that In Fiat Money We Do Not Trust "Chinese Edition" is getting more "popular"......

Wenn man jetzt noch bedenkt das selbst die offiziellen Daten eine CPI von 3% ausweist und man berücksichtigt das der Immobilienmarkt bereits bis zum Bersten aufgepumpt ist ( siehe Andie Xie: "China's Property Market Is One Of The Biggest Bubbles Ever..." kann es wenig verwundern das die Fraktion In Fiat Money We Do Not Trust "Chinese Edition" deutlich an Popularität gewinnt.....
Second, even though banks’ commissions on these products are low, they did not want their clients going to other banks, so they marketed them enthusiastically. Third, in some cases the banks were able to sell their own loan assets on to the trust company, which repackaged them and then sold them as wealth management products back to the bank’s own clients. This allowed the banks to manage their official outstanding net loan position, which was subject to the loan quota.

Trust loans. These are loans extended by the trust company to one or more borrowers, which are then repackaged and sold on. We understand that quite a few real estate firms have borrowed from trusts at 15-20% annualised interest rates, given the banks’ inability (since late last year) to increase their exposure to this sector. A bank that is unable to lend to a client itself may find a trust company that is willing to lend, and then sell the asset through its own branches . .

The point is, these are sizable positions. StanChart thinks the total amount of lending done by trusts and the total value of repackaged bank loan products issued in the first five months of this year was RMB690bn ($100bn). For context, that’s about a month’s worth of Chinese bank lending.

(Other estimates are even higher. The Economic Observer has RMB2,000bn in the first half of 2010, while the Shanghai Benefit Investment Consulting thinks they were at RMB2,5000bn).

The issue then, is that even as China attempts to curb bank loans — sometimes by literally pulling the plug on them — these trusts have stepped in to fill some of the space left behind.

Small wonder then, that the CBRC is so keen to crack down on the industry to make its lending restrictions effective
.

Red Light Flashes for a Bank Lending LoopholeCaixing Online

Despite the late 2009 orders from CBRC, "trust loans from bank-trust cooperation grew significantly in April and May," a commission official said. "Especially in May, the growth began surging. We often received text messages from banks marketing this type of wealth management product."

On June 1, CBRC convened an urgent meeting with the 12 largest of the nation's approximately 60 trust companies, asking that they slow bank cooperation. They asked that bank-trust cooperation at the end of June not exceed the level of deals posted on April 30.

Statistics from the Yanglee Trust Workshop said 504 bank-trust wealth management products were issued in June – an average 20 products per bank per day – valued at about 777 billion yuan, up 30 percent from May.

The CBRC obviously has a minor credibility issue..... ;-)

Sieht ganz so aus als wenn der Regulierer CBRC nicht ganz für voll genommen wird... ;-)

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