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Asian Banks' $60 Billion Hole 

May 4, 2016

Andy Mukherjee, Bloomberg Gadfly

Asia's lenders have dug themselves into a $60 billion hole, which they'll have trouble climbing out of without pulling shareholders down with them.

That sum is the ``missing" bad loan provisions, or the difference between the amount earmarked to deal with souring debt and what banks would need if 2016 turned into a repeat of 2008.

Do the math. Asia's top 200 publicly traded banks had $16.7 trillion in assets last year, on which they had set aside about $296 billion, or 1.78 percent, for loan losses. Ratchet that up to the 2008 rate of 2.14 percent, and they would require an extra $60 billion or so.

Unsurprisingly, as much as one-third of the shortfall is in just one economy: China. But the mainland's lenders aren't the only ones in denial. Most banks in Asia are busy pretending it's business as usual and future profits are safe.

The illusions of solidity aren't fooling many. Despite HSBC bravely holding on to its dividend, the stock fell after the bank reported first-quarter earnings on Tuesday, bringing its one-year decline to more than 30 percent. Charges for bad loans doubled from 12 months earlier but are still a fraction of what they were in 2011 and 2012. Read more

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