ABC - A Horror Story

Under the guidance of the other post, I bumped into the 2007 10K of Agricultural Bank of China. It's a big 4.

Balance Sheet:

Income Statement:

Several things to ponder:

• First of all, it's a big bank - RMB 6 trillion in assets. Not one of the biggest, but big, ranked #277 in the good old Fortune 500.
• But, wow! It's levered up to 70X.
• Assets expanded 19%, though not a surprise given the Chinese economy.
• Interest income RMB 200 billion / Assets RMB 6 trillion = 3.3%
• Interest exp RMB 102 billion / Liabilities RMB 5.9 trillion = 1.6%

I know it's a coarse calc, but so far so good, right? Since the Chinese banking industry is a national monopoly and ABC operates mainly locally, interest risk and bank run are not worries. the only potential problem is credit risk, on which the B/S shows a reserve of a bit above 1%, which would be well compensated by the interest spread. It can cushion 3% bad loans assuming a recovery rate of 50%.

Then I caught this in the financial summary:

The last line: Non-performing Loan 23.5%.

What's Is It Leading to?

I have to say I'm amused. I know Chinese banks are different, but this one seems sooooooooo bankrupt. Here's an aftermath.

And ABC keeps doing this. An excerpt as follows.

低迷的农产品市场或迎来一阵春风，消息人士透露，国家将在东北大豆主产区新增加150万吨的国家收储大豆，同时新增国家收储玉米500万吨、水稻750万吨，借此稳定国内大豆、玉米等农产品种植面积，保护农民种植积极性。

另一位业内人士透露，农发行已在11月中旬向中储粮总公司拨付了总额140亿元的大豆国家收储资金，如按照大豆每斤1.85元计算，意味着将收储400万吨，除10月份已收储150万吨，此次将新增收储250万吨，但官方对此消息还没有证实。受此消息影响，大连商品交易所的大豆期货价格已持续数日上涨。

To my knowledge, this was part of exactly how the Japanese economy's gone bad after a boom.

Understandably, it's a quagmire hard to get out, for complicated reasons. Talking about how to fix it is above my pay grade.

But it's not right. It just isn't.