Credit-Crunch in China and All Over Asia

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The Institute of International Finance (IIF) has released data that shows that the credit crunch in China is hitting harder than was thought at first and is secondly at the worst level since the global financial crisis landed on everyone’s plate. The IIF began the surveys in 2009 as a result of the financial crisis and the figures show for Chinathat the situation has never been worse than today.

The 50-point level which determines whether credit availability is easing or tightening now shows that we are below that level in China today (currently standing at 45.7 on the index). That’s also the first fall in lending conditions in China for the first time in 18 months.

But, it’s not just China that is suffering from the credit-crunch today. It’s also Latin American countries and emerging economies and Asia in general.

The reasons behind the tightening of availability of loans in these regions? The strain that is being put on lending at the moment is primarily due to three factors:

• Domestic funding that is deteriorating.
• High non-performing loans.
• Declining loan demand from customers.

In comparison with the first quarter of 2013, there has been a drop in local funding conditions and the index for Asia now stand at 45.2, which is the lowest it has been at since 2011. There were only 15% of banks in the first quarter that expressed a tightening of funding conditions. In the second quarter of 2013, that figure stood at over double that (38%).

Asia has an index reading for non-performing loans (loans that are either at default (overdue by 90 days) or nearing default) that stands at below the global average today also. The global average stands at 48.1, but Asia is at four points below that (44). Asia has the biggest increase in the number of non-performing loans that they are dealing with today. A figure that is below the level of 50 means that there are increasing defaults on loans in the region.

Loan demand from businesses and individuals in Asia is also on the down. It fell for the second quarter in a row this year, and that was the first drop that had been experienced also since 2011. Just as an example, in June new property laws in Singapore for example meant that property loans were predicted to fall by 15%. The introduction of theTotal Debt Servicing Ratio (TDSR) brought a limit to loan granting by banks there. Home loans have fallen in the second quarter already by 50-60% in some areas of Asia. According to a Central Bank survey in China, Chinese banks saw a fall in the demand for loans in the country. The index fell by 6% to 72.5 from the 77.4-mark in the first quarter this year, according to the People’s Bank of China. The central bank of China also surveyed in the second quarter executives and asked them if they believed that the economy was slowing down. There was an increase in the number that thought it was indeed cooling, from 31.9% to 36.4% of the respondents in the survey.

According to analysts the volatility caused by the US bond market has had repercussions on the emerging markets and the outflows of capital from those markets will continue in the future. But, it is also the lack of liquidity and the excessively high inter-bank lending rates that were experienced in June. The PBOC refused to inject cash as it wanted to control shadow banking at the time and there was an attempt to curb credit growth.

continue article at ZeroHedge:

http://www.zerohedge.com/contributed/2013-07-29/credit-crunch-china-and-all-over-asia