Global Banking Watchdog Warns Over Chinese Banks

Risks of a Chinese banking crisis are mounting, according to a warning indicator from the banking industry’s global watchdog. A key gauge of stress in the banking sector is now more than three times above the danger level, the Bank for International Settlements (BIS) said in its latest quarterly review.
China’s credit-to-GDP gap hit 30.1 in the first quarter of 2016, it said. The BIS considers a credit-to-GDP gap of 10 to be a sign of potential danger.A year ago the BIS quarterly review put the figure for China at 25.4. The BIS calculates the gap by looking at borrowing in relation to the size of the economy, and comparing that with the long-term trend of that ratio. When the two start to diverge, the BIS argues, a banking crisis could be on the way.