There is a Chinese proverb that says that with money you are a dragon; with no money, a worm. But there is another that says flaunting wealth will bring misfortune. This illustrates the enormous problem facing China and its banks as the country deals with a slowing economy, but soaring demand for credit that is being met by an underground financial services industry.
China’s leadership is grappling with how to help its major lenders, who are facing a cash squeeze and may struggle to fund growth, while simultaneously trying to bring the country’s explosion of credit – much of it in the form of shadow banking loans and other forms of irregular lending – under control.
Fitch Ratings director Charlene Wu says the huge credit bubble in China is now ‘extreme’ and out of control. “It could lead to a massive over-capacity problem, and potentially into a Japanese-style deflation. There is no transparency in the shadow banking system, and systemic risk is rising.” Fitch says non-performing loans are only 1% of bank lending, but this number is meaningless given that irregular lending makes up over half of all new credit.
Meanwhile, the big banks need the central bank to help them fend off a cash squeeze. The Wall Street Journal points to the sudden and steep rise in the interbank funding rate in the past month, pushing up banks’ funding costs, and potentially slowing a key source of funds needed for growth. The banks want the regulators to reduce their reserve requirements – the USD$3 trillion they have put on deposit to ‘insure’ them against any financial problems. Some banks are hoping for an announcement as early as Wednesday that they’ll be allowed to unwind some of this reserve to ease their liquidity squeeze.
National Australia Bank boss Cameron Clyne says he would consider an IPO of its UK business if investors show strong appetite for the UK government’s planned privatisation of RBS and Lloyds. But, he says, investors would need some evidence that NAB’s Clydesdale operations in Britain could carry on without support from its Australian parent. “We don’t rule any options in or out – but for an IPO you’ve got to have the business seen to be on a standalone footing,” adding that the UK market was still “ quite difficult for the banks”.
The largest bank in the US says it can achieve annual revenue growth of more than 10% from its Asia-Pacific business over the coming years because of economic growth in the region and opportunities including the internationalisation of the yuan. A key driver of business growth in Asia in the coming years would be the corporate sector, which has traditionally included mergers and acquisitions, and equity and bond issuance.
The growing regional focus on improving the standard of financial services skills has received a boost with Taiwan and China signing a pact to cultivate financial talent. The agreement affects 24 Taiwanese and 48 Chinese banks.
Vietnamese insurers have started to make inroads in other markets, with Laos, Cambodia, and Myanmar among the countries targeted for expansion.
Just simply thinking about money can make you lie, steal, and take unethical decisions, according to new research from Harvard University and University of Utah. CNN reports that researchers conducted a study that showed that even subtle exposure to money puts people in a business mind frame – leading them to make business decisions based on monetary benefits and big payoffs instead of morals. Greed is good, anyone?