Submitted to:

Oleg Deev

Essay Topic: Banking systems of China and Russia: Key Vulnerabilities

Submitted by:
Md Sahriar Nafiz
UCO: 457040

China and Russia have distinct political, social, and economic histories and contemporary
realities. In both China and Russia, central banks have attempted to assert their autonomy,
independence, and authority, but the scale and scope of responsibility is so vast and complex that
initial efforts to effectively manage the economies are praiseworthy yet in need of further
refinement.

Key Vulnerabilities of Chinese Banking system:

Non-Performing Loans: According to the China Banking Regulatory Commission

(CBRC) stood at 1.4 trillion yuan, or 1.75% of the total loan book at the end of Q1-2016.
Shadow banking in China, an unregulated parallel financial system mainly lending to

high risk SMEs, has become a major risk factor for the economy. (Alexander Jones)
Low penetration of banking in rural areas to be a big challenge for China. Similarly,
banks are heavily dependent on interest income, as the fee income is insignificant, less

than 15% of total bank income. (Alexander Jones)

Credit vulnerability is now three times over the danger threshold and has continued to

deteriorate. (Ambrose Evans-Pritchard)

Poor risk assessment and Cheap money. (Diana Farrell, Susan Lund, and Fabrice Morin)

Key Vulnerabilities of Russian Banking system:

Nonperforming loans have increased, with household overdue loans reaching 8.4% of
total loans by February 2016, compared to 6.5% for the corporate sector. (IMF-Sep-2016)

There is considerable uncertainty about the strength of loan portfolios. (IMF- July-2016)

liquidity risk is contained, but individual vulnerabilities remain. (IMF- July-2016)

Market risk, including sovereign risk, appears contained, but data limitations make
the assessment difficult. (IMF-July-2016)

Loan portfolio quality and profitability have deteriorated (Figure 2).

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Corruption is also a major problem that is common to both China and Russia, and the central
banks will need to play a meaningful role in establishing their authority without alienating
business and individuals, whether domestic or foreign. However, given that both countries are
still in the midst of negotiating the scope of the changes that each is experiencing, the
opportunities and challenges presented to central banks are far from being resolved neatly.
Bibliography:

China Banking Regulatory Commission (CBRC) [online]. Available at:

https://goo.gl/1hgbsW
Evans-Pritchard (2016). China facing full-blown banking crisis, world's top financial

watchdog warns. Telegraph UK[Online]. Available at: https://goo.gl/TAa91z

Farrell, Lund, Morin (2006). The promise and perils of Chinas banking system.

McKinsey Global Institute [Online]. Available at: https://goo.gl/BxrkDv

International Monetary Fund (July-2016). Financial System Stability Assessment; IMF

Country Report No. 16/231[online]. P-14. Available at: https://goo.gl/9GfVH7

International Monetary Fund (September-2016). Russian Federation: Financial Sector
Assessment Program: Technical Note-Stress Testing [online]. P-6,7. Available at:

https://www.imf.org/external/pubs/ft/scr/2016/cr16306.pdf
Jones (2014). Chinese Banking: The Strengths AND Weaknesses. International
Banker[Online]. Available at: https://goo.gl/uzzwZc

Figure: IMF September 2016. P-19.

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