China’s debt-equity swap plan spells trouble for banks

Equities are riskier than loans.

China is reportedly preparing a CNY 1 trillion pilot programme to exchange bank loans for equity, a move intended to alleviate mounting bad loans and financial pressures on Chinese firms. A report by Fitch Ratings says that this plan will have a negative effect on the banking sector, as it will allow risk to mount further in the banking sector.

“Banks' ability to support such a plan in a large scale is limited given their slowing profit growth, rising credit costs and more stringent regulatory capital requirements,” Fitch said.

“The scale of the reported swap plan would not be significant for the banking system as a whole, but if the programme were to be markedly scaled up, it could have a sufficient effect on bank assets and capital to be negative for bank credit profiles,” Fitch noted.

Fitch added that a debt-for-equity swap plan without fundamental improvement in borrowers' creditworthiness will only push back resolution of growing asset-quality pressures.

“To be sure, if companies are able to use the swap to improve their financial profiles and sustainability of their business models, then it could help to resolve the NPL issue and contribute to macroeconomic reform over the long run. As such, the types of companies that will be allowed to use the swap programme will determine to what extent it will have a negative effect on banks,” Fitch said.

The people you want to reach are already in this room.

Every quarter, SBR lands on the desks of the founders, CFOs, and directors running Asia's most consequential companies. Every day, they open our newsletter and read our website. It's a room that took twenty years to build — and it's the one most of our partners are trying to get into.

The good news is that the door is open. We work with companies on thought leadership articles, sponsored content, industry summits across Southeast Asia, regional awards programmes, podcasts, and media placements in print and digital. The shape of the right partnership depends on what you're trying to do, which is why we'd rather start with a conversation than send a rate card.

If you have something this room should know about, tell us. We'll tell you honestly whether we can help, and how.

No rate cards until we understand the brief. It's a better use of everyone's time.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia