Rising debt levels will worsen the credit profiles of China's top 200 companies this year, requiring the country's banks to raise as much as $1.7 trillion in capital to cover a likely surge in bad loans, S&P Global said in reports on Tuesday.
The study sees little scope for improvement in 2017 amid worsening leverage and excess capacity in almost all sectors. Debt has emerged as one of China's biggest challenges, with the country's debt load rising to 250 per cent of gross domestic product (GDP). Excessive credit growth is signaling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently. Seventy percent of the companies in the S&P survey were state owned, and they accounted for $2.8 trillion or 90 per cent of the total respondents' debt.
S&P estimated the problem credit ratio at Chinese banks was already at 5.6 percent at end-2015. In a downside scenario of unabated credit growth, that could worsen to 11-17 per cent.
In such a situation, banks would need as much as $1.7 trillion in recapitalisation by 2020, S&P estimated.
