China verbally props up yuan as trade, growth fears spike

Bloomberg

Two top Chinese central bank officials vowed to keep the yuan stable on Tuesday, stoking speculation that policy makers are prepared to take tougher actions to arrest the plunge in the currency.
Using standard language to describe the stance on the currency, People’s Bank of China Governor Yi Gang said China will “keep the yuan exchange rate basically stable at reasonable and balanced level.”
That and comments by another central bank official earlier on Tuesday are the first clear statement on the currency from the authorities since the yuan started weakening in mid-June.
“Recently the foreign exchange market has shown some volatility and we’re paying close attention to that,” Yi said in a statement posted on the central bank’s website, which was a response to questions from the China Securities Journal. The fluctuation is “mainly due to factors such
as a stronger dollar and external uncertainties, and there’s been some pro-cyclical behaviour,” he said.
The yuan is the worst performing currency in Asia over the past three weeks, losing 3.7 percent against the dollar as the domestic economy slows and the nation slides closer to a trade war with the US. A failure to contain the tumble will feed speculation that officials are effectively depreciating the currency to defend against the effects of trade tariffs. The yuan erased losses to advance in onshore and overseas markets after Yi’s comments.
“The PBOC is sending a verbal warning and intervention that the recent slump in the yuan was too quick,” said Zhou Hao, an economist at Commerzbank AG in Singapore. Chinese lenders have been grappling with growing mountain of bad debt after flooding the financial system with cheap credit for years to prop up economic growth. While their reported non-performing loan ratio stood at 1.75 percent as of March 31, according to official data, many analysts say that understates the problem.

Bad loans wipe out Chinese bank’s capital
Bloomberg

A surge in bad loans has nearly wiped out the capital of a Chinese rural bank, according to a local ratings firm, raising fresh doubts about the financial health of the nation’s smaller lenders.
Guiyang Rural Commercial Bank Co., based in the southwestern Guizhou province, was downgraded by China Chengxin International Credit Rating Co after its non-performing loans rose to 7.8 billion yuan in 2017 from 841 million yuan two years ago. That caused lender’s capital adequacy ratio to fall below 1 percent, compared with 11.8 percent at the end of 2016, Chengxin said in a statement.
Guiyang Rural’s woes stem from recent moves by Chinese regulators to force lenders to classify as non-performing all loans that are overdue for more than 90 days, the ratings company said. Such overdue loans accounted for about 24 percent of Guiyang Rural’s total advances in 2017, resulting in a fourfold jump in the bank’s NPL ratio, to 20% of total loans, Chengxin said.