It feels like 2008 all over again. News about troubled banks hit the wires every single day. In 2013, however, the United States is not the epicenter of the crisis; it is China and things are getting worse by the day. According to Chinese media, banks have curbed lending activity in a bid to reduce risk and repair their balance sheets.
The trouble started at the end of May when reports emerged that the Industrial and Commercial Bank (ICBC) could not repay an interbank loan. Later in June, the Chinese central bank was forced to intervene to prop up the Bank of China (BoC), according to market sources. Bank of China “solemnly” denied these reports, but the damage was done.
The stock market entered a bear market June 25, 2013, and interbank rates spiked to 13.4 percent on June 20 for overnight loans, a level not seen since the last crisis. Following a relatively less serious report about Bank of China suspending transfers to and from futures trading accounts June 24, 2013, the real bomb-shell hit June 26, 2013.
According to reports by reputable business paper Caixin, banks have stopped lending activity in some branches. The paper cites a source from the Shenzhen branch of ICBC saying that the branch was under direct orders from the headquarters to suspend all lending.
“All of our loans have been put on hold,” the source said as banks are scrambling to meet regulatory lending ratios. The recent gyrations in the interbank market have made it difficult for banks to fund themselves, so they have to cut back on lending.