China Banking Stress Indicator Eased for Fifth-Straight Quarter

Bloomberg Intelligence’s Francis Chan talks about the year ahead for Asia banks.

A warning indicator for banking stress in China fell for a fifth-straight quarter, signaling that the leadership’s drive to squeeze risk from the financial system is making progress.

China’s credit-to-gross domestic product “gap” declined to 18.9 percent in the second quarter from 22.1 percent in the first three months of this year, according to data released Sunday by the Bank for International Settlements in Basel, Switzerland. That’s down from a high of 28.8 percent in the first quarter of 2016 and below the 2013 level of 19 percent.

The gap is the difference between the credit-to-GDP ratio and its long-term trend. The series captures total borrowing by the private non-financial sector, such as households and non-financial companies, according to the BIS, known as the central bank for central banks.

President Xi Jinping this year has overseen a broad push to ensure financial stability, with officials consistently pledging prudent and neutral monetary policy. While People’s Bank of China Governor Zhou Xiaochuan has made a series of blunt warnings about debt levels in the economy, there’s no sign that deleveraging is denting the expansion, with economists projecting a 6.8 percent pace that would be the first full-year acceleration in seven years.

— With assistance by Jeff Kearns

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