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DBS’s Gupta Says China Can Absorb ‘Unproductive’ Bank Assets

Piyush Gupta, chief executive officer of DBS Group Holdings Ltd., southeast Asia’s largest bank, comments on the short-term risks in China and the implications of Basel rules for Asian banks.

On Chinese bank lending:

“The Chinese banks put on nearly $2 trillion in loans in a two-year period. That’s a lot of loans. And if you reckon that anything from 10 to 20 percent of them went into unproductive investments, that’s nearly $300 billion of assets that are potentially unproductive. At some stage, they will have to come out of the tangible book values of these banks.”

“China as a country has the capacity to absorb those kinds of numbers.”

On China’s outlook:

“Medium term, I would bet on China.”

“We think Asia will power through. In the short term, there is uncertainty. Inflation at 6.5 percent is a serious issue in China. Some of the implications of the local-government financing vehicles in the short term could create a bouncy ride. There’s no question that the second half of the year will be slow. But if you think three, five or 10 years out, it’s a good bet to make.”

On Basel III rules:

“If you look at most Southeast Asian banks, and Singapore banks are an example, we’ve been running core Tier 1 north of 11 percent for the entire decade. And that’s true for most Asian countries that were impacted by the crisis. Therefore no matter what level of stress you put into the system, most of the Asian players can quite handily address those stress situations.”

“You could argue that the book value of some of the Chinese banks is questionable. But by and large the Asian banks are really strongly capitalized. So the Basel III implications are not very onerous for most Asian countries.”

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