Banks bringing the market to a boil but CBRC won't say so

"Eight mainland banks, including Industrial and Commercial Bank of China, have been punished for allowing loans to be channelled into property and stock markets, the banking regulator said yesterday." - SCMP, June 19

Back in 1996, when I was in the stockbroking business as a regional investment analyst, some of our people were wondering whether the Thai banking sector wasn't perhaps a little overstretched. Off I went to have a look along with a few others from our company.

In meetings in Bangkok, we were soon of the view that Thai banks were up over their noses in exposure to a grossly overvalued property sector, that they were probably just as exposed to a soaring stock market, and that the Thai economy was buoyed by artificial liquidity induced by a rigged exchange rate.

But that was not what the banks told us. What the banks said was that, yes, there might be a problem here and there and some minor lenders may have overextended themselves, but the situation was under control, everything was being monitored closely and we had no reason to worry ourselves. This was also the message we got from the Bank of Thailand and from the Finance Ministry....

.....we now have the China Banking Regulatory Commission rapping the knuckles of eight banks because money they had advanced to customers had found its way into the stock market. Shock and horror, what a surprise. They'll try to surprise me next by telling me that water flows downhill.

But I suppose it will allow the CBRC to say that it is monitoring the situation closely and, while there may be a few minor lapses, matters are fully under control and there is no need to worry, which is exactly what the Bank of Thailand and Bank Indonesia used to tell me.....

And the longer the market is on the boil, the worse the banks get burnt in the end. That's the way the world is and the CBRC isn't going to change the world.

http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253...