An advisor to the Chinese banking sector claims worsening liquidity pressure is driving financial institutions to lie to their more affluent clients in order to convince them to retire old debt.
Speaking to Finews.asia the anonymous advisor said that the liquidity woes of the Chinese economy and the non-performing loans of its banking sector are far worse than generally realised.
According to the source 60 – 65% of the owners of listed companies are using the lines of credit obtained from banks via share pledges to fund lavish lifestyles, while small and medium-enterprises are now coming under “tremendous liquidity pressure.”
In order to deal with these urgent liquidity conditions, the source said that Chinese banks have resorted to the desperate tactic of falsely convincing borrowers that they will allow them to roll over their debts after they first obtain “bridging loans” from loan sharks.
“Banks are tricking borrowers,” said the source who is a Chinese national. “The bridging loan comes from loan sharks at an interest rate of 36 to 60 percent per annum…in quite a few cases the promised new loans from the banks never materialise.”