China at Risk of Banking Crisis in BIS’s Early Warning Signal

13-Mar-2018 Intellasia | Bloomberg | 6:00 AM Print This Post

China, Canada and Hong Kong are among the economies most at risk of a banking crisis, according to early warning indicators compiled by the Bank for International Settlements.

Canadawhose economy grew last year at the fastest pace since 2011was flagged thanks to its households’ maxed-out credit cards and high debt levels in the wider economy. These same issues also afflict China and Hong Kong, according to the study.

“The indicators currently point to the build-up of risks in several economies,” analysts Inaki Aldasoro, Claudio Borio and Mathias Drehmann wrote in the BIS’s latest Quarterly Review published on Sunday.

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The study offered some surprising results: for example, Italy wasn’t shown as being at risk, despite its struggles with a slow-growing economy and banks that are mired in bad debts.

While China was flagged, a key warning indicator known as the credit-to-gross domestic product “gap” showed an improvement, said the BIS, known as the central bank for central banks. This may suggest the government is making progress in its push to reduce financial-sector risk.

The Basel, Switzerland-based BIS routinely collects and analyses data to monitor vulnerabilities in the global financial system. These data typically include the amount of credit in an economy and house prices, as well as borrowers’ ability to service their debts.

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For this study, the analysts assessed household borrowings and cross-border or foreign-currency liabilities as potential sources of vulnerability by back-testing them against earlier crises. They then scored the indicators by the amount they currently deviate from long-term trends.


Category: China

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