China Test Shows Bad Loan Surge Would Hurt Banks’ Capital
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China’s systemically important banks may see their capital adequacy ratio fall to 10.5 percent in the event bad loans surge fivefold, according to a stress test by the nation’s central bank.
The average capital adequacy ratio of the 17 banks, which account for 61 percent of China’s banking assets, may fall to 10.5 percent from the end-2013 level of 11.98 percent should nonperforming loans increase 400 percent in the worst-case scenario, the People’s Bank of China said in its annual financial stability report yesterday.