Banking failure caused a credit crunch.

As a result, bank credit will be harder to obtain.

Local governments rely on bank credit to invest in infrastructure and real estate development.

Using bank credits to speculate in equity and housing markets is still mostly forbidden.

Credit easing and support of the banking system helped significantly by preventing much worse.

The banking system of Azerbaijan consists of the Central Bank of Azerbaijan, commercial banks and non banking credit organizations.

The banking sector provides little in the way of financing for women's enterprises and, when it does so, funding is generally advanced through a domiciliary line of credit.

In the last two years, bank credit has become the main source of capital in China a risky situation, given the low quality and inadequacy of bank capital.

As a result, the volume of bank credits financing local investments increased six fold in 2009 alone.

In the last few years, 30 40 of bank credits went to government infrastructure projects.

Indeed, it is increasingly common for banks off balance sheet lending to exceed newly issued balance sheet credit.

Governments should encourage the banking sector to provide credit to SMEs, for example through fiscal incentives.

The investment loans and massive debts among local financing platforms, together with the off record credit channeled through the shadow banking system, are increasing the risk that non performing loans will soon shake the banking sector.

This is true for the banking system, which has not de leveraged to the satisfaction of either regulators or the markets, thus limiting the scope for credit growth.

Moreover, the country benefits from strong public finances, prudent monetary policy, sustainable debt dynamics, a sound banking system, and well functioning credit markets.

So far, the strategy of maintaining banking systems on feeding tubes of taxpayer guaranteed short term credit has made sense.

For example, since 2008, when the central authorities tried to boost growth to combat the global crisis, local governments expanded their investment capacity through shadow banking vehicles that sought to circumvent restraints on bank credit.

Those who borrowed recklessly during China s credit boom are not small private firms or average consumers (household indebtedness in China is very low), but local governments, SOEs, and well connected real estate developers (many of them family members of government officials).

In just 10 years, the share of state directed bank lending in China has fallen from 92 of new credit creation to less than half.

Moreover, roughly 40 of the increase in bank credit in 2009 accommodated the fiscal expansion, as projects were started prior to the budget allocations needed to finance them.

The credit crunch in the banking system is becoming more severe as banks deleverage by selling assets and rationing credit, exacerbating the downturn.

Credit Where Credit is Due

Indeed, the rapid expansion of bank credit needed to finance skyrocketing government led investment is increasing the amount of liquidity in China s financial system.

Fortunately, larger companies are now less dependent on bank credit than they were in the past, thanks to a well developed market for commercial paper that in effect bypasses traditional bank loans.

In recent years, the central government has tightened its control over the banking sector, undermining the financial system s development, not least by impeding banks ability to assess credit risk.

This breakdown suggests that the 8 trillion cushion would be sufficient to offset potential losses arising from higher risk credit in China s commercial banking sector.

According to the China Banking Regulatory Commission, shadow banking (all credit not regulated by the same standards as conventional bank loans) increased from 800 billion ( 130 billion) in 2008 to 7.6 trillion in 2012 (roughly 14.6 of GDP).

If the shadow banking system collapses, the consequences for the financial system will be much graver than the problems caused by underground credit networks and local government finance platforms, which were much discussed in 2012.

Rural Credit

Credit

First, the banking system.

Lemon Banking

Reforming Bank Reform

4320 Bank authorization

Banks and credit card companies have become much more cautious about extending credit.

The supply of credit, in other words, resulted from the demand for credit.

Item 6 (d) of the provisional agenda

Explanatory note

Rome, 27 30 September 2005

Note by the secretariat

Item 8 of the provisional agenda

Draft global plan of action

Geneva, 6 10 November 2006

Note by the sSecretariat

Original English