China is getting serious about corruption at its banks. At least that seems to be the message. Authorities have now detained the head of China's Postal Savings Bank, accused of economic crimes. It's just weeks after another top banking executive was taken into custody for corruption allegations. The crackdown comes as worries grow about the health of China's banks and bad loans on their books. Regulators recently audit banks to reveal risky lending, say Reuters sources. But putting dodgy dealings under the spotlight is a positive sign, says Mike Warner.
This is part of the opening-up of some of these closed institutions and opening them up to competition and potentially preparing them for an IPO. But to do so you do have to show in the light on their practices.
The real risk to China's banks is runaway lending, analysts say. New loans are on the rise as the government pushes banks to pump liquidity into the flagging economy.
If we see a sharp acceleration in loan growth, ah yes, that will increase investor's concern. And that would certainly increase their concern over the banks about the credit quality of their loan book. And you know, especially for as you're going into a slowing economy that would concern investors significantly.
Investors are hoping for more strengths in 2009 when a flood of new lending caused a sharp rising problem loans. With government debt already approaching half of China's GDP, the sector will be watched closely for any signs of distress.
Tasa Donald for Reuters
