China, Canada, and Hong Kong are the major economies most at risk of a banking crisis according to a new report from the Bank of International Settlements (BIS).

This is not the first time the BIS – a financial organization co-owned by 60 of the largest central banks around the globe – has sounded the alarm on China’s financial system.

The BIS early-warning indicator (EWI) system narrows in on debt, both household and international, and weighs the numbers against 20-year rolling averages. The rationale is that aberrations in the normal boom-bust cycle like inflated asset prices can be identified before they are allowed to trigger a wider economic crisis. Thus the red flags don’t necessarily indicate an imminent crisis, but rather a potentially destabilizing aberration in a country’s long-term trend.

Here’s what the latest BIS quarterly report found:

Impact

This BIS analyzed financial data across all global economies using four metrics: credit-to-GDP gap (the ratio of household credit-to-GDP adjusted to account for long-term trends); the difference between household sector debt service coverage ratio and its 20-year average; economy-wide debt servicing coverage ratio and its 20-year average; and finally cross-border claims to GDP, which take into account whether debt is denominated in a foreign currency such as USD.  Of all global economies, only Hong Kong, China, and Canada showed a red flag in two different categories.

Canada’s credit-to-GDP gap and national DSR were flagged red by the BIS, and its economy-wide DSR and cross-border claims to GDP amber (caution). Canadian consumers have long been breaking record after record when it comes to leveraging themselves, and at last count every Canadian has about $1.68 in credit debt for every $1 of disposable income according to Statistics Canada. Credit growth has been directly linked to Canada’s real estate market, which has also been flagged for a correction by various financial think tanks and credit rating institutions for years now. Though the BIS report did not get very specific about any of the three countries that flagged red, it did point out that the troubling direction of Canada’s metrics is “reinforced by property price developments.”