Chinas Banks 2010 Harvard Case Solution & Analysis

In the 1990s, a significant dispute regarding the strength and stability of banks in China. Of particular concern is the debt to the bank state-owned enterprises (SOEs). Many state enterprises are experiencing financial difficulties, so they may not be able to repay the loans. Some analysts have pointed out that, as banks and state enterprises were both owned by the state, the only concern was appropriate financial stability of government and its willingness to take responsibility for any non-performing bank loans. In the first years of the 21st century, the government conducted widespread programs to improve the balance in the banks by purchasing non-performing loans from the banks, and then resells them at a discount, often foreign financial institutions to the private sector. Until 2010, this process provided the generally accepted belief in the stability and security of the Bank of China. Total non-performing loans as a percentage of total bank loans fell from 20 percent in 2003 to three percent in 2008. 2010 brought a new understanding that the non-performing loan problem reappeared. However, China's banks are now in private and public shareholders, and therefore the solution has become more complicated. The Government's response was to insist that China's banks to increase their capital base by issuing new shares. "Hide
by Daniel Cadieux, David W. Conklin Source: Richard Ivey School of Business Foundation 2 pages. Publication Date: September 3, 2010. Prod. #: 910M78-PDF-ENG

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