BIS: China banking crisis warning signal still flashing

By BLOOMBERG

LONDON • 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 (BIS).

Canada — whose economy grew last year at the fastest pace since 2011 — was flagged thanks to its households’ maxed-out credit cards and high debt levels in the wider economy.

Household borrowing is also seen as a risk factor for 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’ latest Quarterly Review published on Sunday.

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

The gap is the difference between the credit-to-GDP ratio and its longterm trend. A blow-out in the number can signal that credit growth is excessive and a financial bust may be looming.

In China, the gap fell to 16.7% in the third quarter of 2017, down from a peak of 28.9% in March 2016 and the lowest since 2012, the study showed.

The narrowing gap in China “suggests the efficiency of financial intermediation is improving”, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered plc. “This helps to slow the pace of the rise of the debt-to-GDP ratio, creating conditions for an eventual deleveraging of the economy.”