CDS Says Chinese Banks Are Turning European

Readers should have noticed that here I have no love for the Chinese banking sector.  With huge loans to local governments and others which probably can’t be repaid as a result of the credit spree after the 2008 financial crisis, it is only a matter of time when problems surface.  Thus we have seen very poor performances of banking shares in China.

There is a widespread belief that Chinese banks are safe investment because they can’t possibly go bankrupt.  After all, the government will be there to back-stop.  I don’t disagree with the judgment, but I often joked that we will probably see an RBS kind of outcome to Chinese banks: RBS is still around because the British government supports it, but its equities have been wiped out, to say the least.

Credit market has shown its distrust in Chinese banks.  The spreads in the credit default swaps for Bank of China and China Development Bank have been surging according to Société Générale, and they are surging at much faster rates than the rest of Asia ex. Japan.

Source: Société Générale

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.