S&P says China will trigger new Asian banking crisis

Sees Asia as next world hot spot.

Standard & Poor’s Ratings Services yesterday warned of a threat to Asia’s financial stability from a credit and debt bubble in China. It said China’s slower economic growth could trigger a surge in bad loans and fuel a further expansion of the shadow banking sector the government has failed to control.

“A regional banking crisis isn’t out of the question,” S&P said.

S&P’s is concerned largely with shadow banking, or the off-balance sheet lending by China’s banks that is unmonitored by regulators.

S&P said “ . . . years of very rapid credit expansion on- and off-balance-sheet, along with a strong increase in housing prices, is set to backfire on banks’ asset quality, profitability, and possibly liquidity.”

S&P, however, acknowledges that Beijing would bail out the finance sector in an emergency.

The ratings firm also sees significant risks in India, where lenders face massive threats from poor economic growth, a sliding rupee and spiking interest rates. S&P said this negative combination likely means an increase in NPLs or non-performing loans.