China fact of the day
China’s major commercial banks have a funding issue outside Beijing’s control: They’re running low on the U.S. dollars they need for activities both at home and abroad.
The combined dollar liabilities at the big four commercial banks exceeded their dollar assets at the end of 2018, their annual results show—a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities, but now they owe more dollars to creditors and customers than are owed to them.
Bank of China BACHY -0.66% is by far the greatest contributor to the shift. Once the holder of more net assets in dollars than any other Chinese lender, it ended 2018 owing about $70 billion more in dollar liabilities than it booked in dollar assets. The other three lenders actually finished the year with more dollar assets than liabilities, though Industrial & Commercial Bank of China IDCBY -0.33% had a deficit at the end of 2017.
In its annual report, Bank of China says that its asset-liability imbalance is more than addressed by dollar funding that doesn’t sit on its balance sheet. Instruments like currency swaps and forwards are accounted for elsewhere.
But such off-balance-sheet lending can be flighty. As the Bank for International Settlements notes, the vast majority of currency derivatives mature in under one year, meaning they are up for constant renewal and could evaporate during times of pressure.
Here is the full WSJ piece, via Christopher Balding.