In the 1990s created considerable debate about the strength and stability of Chinese banks. Of particular importance is the debt with the banks, the state-owned enterprises (SOEs) were. Many state-owned enterprises have been in financial difficulties and so they might not have been able to repay these loans. Some analysts pointed out that, as banks and state enterprises were both owned by the government, the only relevant concern the financial strength of the government and their willingness to accept was respons … Read more »

In the 1990s created considerable debate about the strength and stability of Chinese banks. Of particular importance is the debt with the banks, the state-owned enterprises (SOEs) were. Many state-owned enterprises have been in financial difficulties and so they might not have been able to repay these loans. Some analysts pointed out that, as banks and state enterprises were both owned by the government, the only relevant concern the financial strength of the government and its willingness to assume responsibility for any of the banks was to take non-performing loans. In the early years of the 21st Century, the government introduced a comprehensive program to improve the balance sheets of banks through the purchase of non-performing loans from the banks and then sold them at a discount, often foreign private sector aimed at financial institutions. Before this method in 2010 was a generally accepted confidence in the stability and security of the Chinese banks. Total non-performing loans as a percentage of total bank loans fell from 20 percent in 2003 to three percent in 2008. The year 2010 brought a new realization that the non-performing loan problem resurfaced. But China’s banks now had private as well as government shareholders, and the solution was more complex. The government’s response was to insist that China’s banks to increase their capital base., By issuing new shares
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from
Danielle Cadieux,
David W. Conklin
Source: Ivey Publishing
2 pages.
Release Date: 03 September 2010. Prod #: 910M78-PDF-ENG
China’s Banks 2010 HBR case solution

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