According to Piyush Gupta, the chief executive officer of DBS, fears of a Chinese debt crisis are “overdone”. He said at a results briefing that any issues are contained to certain industries. His comments come as investors become more wary of high leverage ratios and bad debts throughout the Chinese banking system.
The CEO of Singapore and Southeast Asia’s largest bank by total assets described the Chinese economy as “two-speed”, where some industries such as exports and consumer goods are still strong and others such as the real estate, raw materials and construction sectors are problematic.
He stated that China’s debt is not “off the charts” when compared to some other countries. A research report by Standard Chartered bank showed that China’s total debt to GDP is 251%. However, China has an advantage in that it holds US$4 trillion of foreign exchange reserves which gives it the ability to recapitalize if they need to, Gupta explained.
However, he warned that it is very important to focus on the correct businesses. “If you are in the wrong business with the wrong counterparty, you will get hurt”.
He pointed out that some economies such as that of the U.S. have held strong despite putting US$700 billion into bailout programs like TARP, and Japan has “not yet collapsed” even while holding 400% of their GDP in debt.
Reports of fraudulent loans from the Port of Qingdao, one of the ten busiest ports in the world, have alarmed banks with exposure to such financing such as Standard Chartered, ABN and HSBC. Gupta claimed that DBS has “zero exposure” to either China’s Port of Qingdao or collateral financing within the country and has seen no signs of stress in its China book.
DBS has made S$50 billion of loans to Chinese companies and out of that amount, S$36 billion are trade loans. The company’s non-performing loan (NPL) ratio of 0.9% during 2014’s second quarter was lower than that of competitors such as United Overseas Bank (UOB), which reported a NPL ratio of 1.2%.
DBS’s net profit during 2014’s first half was over S$2 billion despite lower trading income because of higher loan volume, annuity fee income and net interest margin.