International Bank Lending to China Hits $1.89 Trillion

A report from Fitch has revealed the amount that international banks have loaned to China soared to $1.89 trillion at the end of June this year, up from $1.67 trillion six months earlier.

The surge comes after a large increase in the demand for borrowing and a domestic deleveraging campaign to reduce local lending.

International banks have seen China as a more attractive proposition for lending after the country’s banking regulator introduced new regulations which limit banks’ ability to expand lending this year as it bids to control an economy that’s addicted to debt. This meant that banks could charge a higher interest rate, but Fitch has warned that greater exposure carries risk.

Expansion into China will support the margins of banks based in markets with limited domestic growth prospects and low interest rates,” said the report.

However, China-related exposure carries greater supervision and management risks for banks than domestic lending, given they are less familiar with China’s market […] a further increase in China exposure without adequate controls and capital buffers could have a negative impact on banks’ ratings.