Home » China, only 2% of banks in the “red zone” but Huarong is a loose cannon

China, only 2% of banks in the “red zone” but Huarong is a loose cannon

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At the end of 2020, only 2% of Chinese banks revealed problems of resilience, falling within what is called the “red zone”. There are about 442 very high risk institutions. The number of Chinese banks falling into this category in the fourth quarter of 2020 decreased by 132 compared to the previous quarter and by 103 over the same period in 2019. The real fears for Chinese markets come from the situation of Huarong, the asset giant. management in serious crisis whose debt was downgraded by Fitch Ratings for having once again deferred the payment of interest on the debt.

The Huarong case terrifies the market

The increase in industrial profits to + 92% in March on an annual basis compared to + 20.1% does not change the terms of the question. In fact, in 2020, the situation of the Chinese economy was steeped in the effects of the pandemic. What matters, in this first quarter, is the stability of the system with respect to corporate debt falling due.

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The Central Bank has released the panorama of financial risks estimated in the last quarter of 2020 classified on a defined risk scale.

It is noteworthy that the classification arrives at the end of April, when companies must present the 2020 results in view of the stock exchange audit. In this context, major concerns arise from the situation of Huarong, the asset management gian who ended up at the center of scandals and corruption at the beginning of the year and is now struggling with a problematic payment of debt interest. Postponed for the second time, it led to the downgrading of the debt by Fitch.

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The good and the bad of the central bank

Only 442 financial institutions received “red zone” ratings, equal to 2% of industry-wide assets. The number of Chinese banks falling into this category in the fourth quarter of 2020 decreased by 132 compared to the previous quarter and by 103 compared to the same period in 2019. The Bank, let us remember, last year allowed one of these companies to go bankrupt. , the first.

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