Small Bank Debt Warnings Flash in China

Yuan2, cc Flickr David Dennis, modified,

New disclosures from the National Audit Office (NAO) suggest that an increasing number of China’s small banks are struggling with toxic debts on their balance sheet.

The report focused on Henan province, where it found that 42 banks had crossed the red line of 5 percent non-performing loans in their lending portfolio; 12 banks had rates over 20 percent; and “a few” had non-performing loans in excess of 40 percent.

These banks are small, regional players, and taken in isolation their toxic debts do not represent a systemic risk. However, there’s still some important takeaways here:

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