Regular readers know that what convinces market participants is not management's opinion, but rather the market participant's own analysis when all the useful, relevant information is disclosed.
Clearly, China's banks face the same problem that Bank of America faces: it is time to put up or shut up.
Like Bank of America, these firms are hiding their current asset and liability-level data behind opaque financial reporting.
Please note, I do not know whether China's banks or their critics are right.
What I do know is that China's banks are in possession of facts, their current asset and liability-level data, that are not available to other market participants. If these facts were made available and they supported China's banks, then the critics would go away. In fact, the mere announcement that these facts were going to be disclosed would tend to silence the critics as the critics would assume the facts would not be voluntarily disclosed if they did not support China's banks.
That China's banks do not make these facts available strengthens the argument of their critics. Critics see the failure to disclose all their current asset and liability-level data as confirmation that China's have something to hide.
Like BofA CEO Brian Moynihan, it is time that China's banks either put up current asset and liability-level data or shut up.
In case China's banks elect to put up, they know how to contact your humble blogger for assistance in coordinating this disclosure.
Chinese banks have once again produced sparkling results but they were unable to dispel concerns that their good fortune might yet turn to trouble because of non-performing loans and a slowing economy....
The story for much of the past year has been the divergence between Chinese banks’ record results and the unshakeable doubts in the market that the bill for their past lending excesses has yet to come due....
Although Chinese bank shares jumped a touch on Thursday, they remained generally flat on the week and down heavily on the year, as investors appeared to focus less on the strong earnings and more on the cracks in the foundations of the banks’ success.
“We continue to see decent results but the numbers will not convince the bears that there isn’t a NPL problem. It’s just that we’re not there yet,” said an analyst who wished not to be named.
Worries continue to centre on the surge in lending in China since late 2008, when Beijing used the banks, all of which are state controlled, to lead a credit-fuelled stimulus for the economy.
The risks of that approach have started to show in recent months as officials have tried to account for the loans given to local governments – about Rmb10,700bn ($1,650bn), according to the national audit office – and estimate how many might end up in default.
Prodded by regulators, the banks used their first-half results to present the most thorough picture yet of these potential problem loans....
But the banks also tried to reassure about the health of these loans and their readiness for any defaults.
China Construction Bank, the country’s second-largest lender, said 84 per cent of its loans to local governments were fully covered by cash flow. And with its capital adequacy ratio at 12.5 per cent, exceeding regulatory requirements, Guo Shuqing, CCB chairman, said he saw no need to raise any more equity.
“We’ll be able to maintain a good level of capital for the next few years. This won’t be a problem,” said Mr Guo.
At Bank of China, Li Lihui, president, said provisions had been made for 217 per cent of bad loans, also well above regulatory requirements. “We have been extremely prudent and conservative,” he said.
But the undeniable strength of the numbers served as a reminder of the chasm between the banks’ confidence and the unease that has weighed on investors’ minds.
“It’s somewhat a trust issue in the reliability of the banks’ due diligence and reporting,” said May Yan, head of China banks research with Barclays Capital. “From the data provided by the banks, it looks like the impact [of the loans to governments] may not be big, but it is dubious how they estimate cash flow.”
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