Of course, if it all sounds beyond your scope of understanding, you're correct and honest with yourself.
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The adjusted loan-to-deposit ratio, which includes a range of off-balance sheet items and is an indicator of the banking system’s ability to weather stress, climbed to 80 percent as of June 30, according to S&P Global Ratings. For some smaller lenders, the ratio has already topped 100 percent, S&P estimates.
S&P’s adjusted measure is rising much faster than the official loan-to-deposit ratio as banks pile into off-balance sheet lending, sidestepping government efforts to rein in credit. At the current pace, overall credit could surpass deposits on an adjusted basis within a few years -- a level that would give China little leeway to stave off financial turmoil, S&P says.
"The next two to three years is a crucial window for China to rein in the ratio, or we will be in serious trouble," said S&P’s Beijing-based director Liao Qiang. "Reaching 100 percent doesn’t mean a crisis will ensue immediately, but it shows China’s entire deposit base is used up and any loss of confidence from savers will severely destabilize the banking system."
Deposit-taking has formed a cornerstone of China’s banking system as it expanded in tandem with the economy, providing lenders with a stable, low-cost funding base to fuel credit growth. Chinese households and companies hold $22 trillion of bank deposits, more than anywhere else in the world. That cushion has made lenders less dependent on short-term wholesale funding than banks elsewhere.
For two decades, China imposed a cap that limited loans to a maximum 75 percent of deposits as part of measures to contain risks. That ceiling was abolished in October 2015, in part because it was seen as a blunt tool that encouraged illicit deposit-hoarding and moving loans off balance sheets. The official loan-to-deposit ratio among Chinese lenders stood at 67 percent at the end of September, up only slightly from 66 percent when the cap was lifted. But that measure has become less relevant as Chinese banks -- especially small and mid-sized ones -- have stepped up shadow lending and sales of savings-like offerings called wealth management products, which don’t get carried on their balance sheets. The shift is captured in S&P’s adjusted ratio, based on the country’s 50 largest banks, which stood at 70 percent in 2013 and rose by 10 percentage points over the following two years.
The adjusted loan-to-deposit ratio, which includes a range of off-balance sheet items and is an indicator of the banking system’s ability to weather stress, climbed to 80 percent as of June 30, according to S&P Global Ratings. For some smaller lenders, the ratio has already topped 100 percent, S&P estimates.
The ratio is important in China because their banking system is a fractional reserve system.
80% is up there.
Take risks - if you win you will become wealthy, if you lose you will become wise
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