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BIS warns of impending banking crisis
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The high-risk loans extended by the Chinese banks during the 2008 global financial crisis may likely come to haunt them after the Bank of International Settlements suggested in a report that China, Brazil and Turkey could face possible banking crisis due to growing credit and bad debt in three years time.
China’s ratio of credit to gross domestic product, which measures how much private-sector credit has deviated from its long-term trend, stands at 25.4 percent, BIS said on Sunday. The figure is the highest among major economies, followed by Turkey’s 16.6 percent and Brazil’s 15.7 percent.
“Historically, a country with a ratio above a 10 percent threshold has a two-thirds chance of ‘serious banking strains’ occurring within three years,” BIS said. “Early warning indicators of banking stress pointed to risks arising from strong credit growth,” the report noted.
The world’s No. 2 economy loaned out a record 17.6 trillion yuan (US$2.8 trillion) in 2008.
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