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Non-performingloans
Oct. 22nd, 2007 08:47 amOne of the old stalwarts when you wanted to criticize (a) emerging markets and (b) state-operated financial systems was to mention 'non-performing loans'.
The system worked like this. If you were a bank, and the cousin of the local leading politician, or the son of the police chief, came and asked for a loan, you did not tend to examine too closely the likelihood of the loan being paid back. This was a good idea, because if you had studied this, you would have realized the truth, that it would be a cold day in hell before the money would be returned.
But, hell, so what, the accounting systems of emerging markets aren't that sophisticated -- just put the loan on the books and that's fine.
In China, they grasped this problem by the horns, cleverly getting foreign financial companies that wanted to move into China to take the responsibility for these non-existent funds (which had for many years been used as 'capital'). In India, thisngs aren't so rosy, with NPLs at the state banks still rather high for conservative tastes.
However, both countries are stellar performers compared to the US, where the aim seems to be to increase non-performing loans to a level on a par with the most emerging of emerging-market countries. Without any compulsion at all, the banks have lent brazillions of dollars to people who, at the first sign of rain, aren't going to pay it back. So desperate was the push to consume, spending tomorrow's money today, that it didn't seem to occur to the banks that one of the last resorts available to borrowers when they found that interest payments were taking up 50% or more of their income was "hey, fuck this".
KeyCorp now has non-performing loans of about a quarter of a billion dollars. At Wells Fargo, loans with more than 90 days interest overdue amounted to $5.53bn, up from $3.66bn a year ago.
Admirable, the way that the developed world is making the place a global village. While India and China had to clean up its NPLs, the US has a prgramme to make its own much larger. Marvellous.
The system worked like this. If you were a bank, and the cousin of the local leading politician, or the son of the police chief, came and asked for a loan, you did not tend to examine too closely the likelihood of the loan being paid back. This was a good idea, because if you had studied this, you would have realized the truth, that it would be a cold day in hell before the money would be returned.
But, hell, so what, the accounting systems of emerging markets aren't that sophisticated -- just put the loan on the books and that's fine.
In China, they grasped this problem by the horns, cleverly getting foreign financial companies that wanted to move into China to take the responsibility for these non-existent funds (which had for many years been used as 'capital'). In India, thisngs aren't so rosy, with NPLs at the state banks still rather high for conservative tastes.
However, both countries are stellar performers compared to the US, where the aim seems to be to increase non-performing loans to a level on a par with the most emerging of emerging-market countries. Without any compulsion at all, the banks have lent brazillions of dollars to people who, at the first sign of rain, aren't going to pay it back. So desperate was the push to consume, spending tomorrow's money today, that it didn't seem to occur to the banks that one of the last resorts available to borrowers when they found that interest payments were taking up 50% or more of their income was "hey, fuck this".
KeyCorp now has non-performing loans of about a quarter of a billion dollars. At Wells Fargo, loans with more than 90 days interest overdue amounted to $5.53bn, up from $3.66bn a year ago.
Admirable, the way that the developed world is making the place a global village. While India and China had to clean up its NPLs, the US has a prgramme to make its own much larger. Marvellous.
