Central Bank Warns of Risks of Surging Household Debt
What’s new: China’s central bank warned of potential risks associated with the rapidly increasing levels of household debt. The warning was published in a monetary policy report (link in Chinese) released on Monday, saying that consumer finance should not be counted on to expand consumption.
“There is very little room for further expansion of household debt,” the report said, citing the fact that the household leverage ratio rose over 31 percentage points from the end of 2011 to the first half of 2020.
Some individual borrowers are “not rational” and borrow more than they are capable of repaying, the report said, adding that some financial institutions have ignored the risks behind consumer finance.
The background: China’s household leverage ratio was 59.1% at the end of June 2020 according to the standard of the Bank for International Settlements, which was close to levels in the Eurozone and Japan, according to the report. Excluding debt raised for business purposes, the leverage ratio would fall to about 46%, which was at a reasonable level, the report added.
At the end of December, outstanding yuan household loans reached 63.2 trillion yuan ($9.82 trillion), rising 14.2% year-on-year which was faster than 12.8% for total yuan loans, central bank data show.
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