Mainland banking plays are likely to undergo a wave of revaluations after the government said it will offer to convert 1 trillion yuan (US$160.2 billion) of maturing local government debt into new debt, the Hong Kong Economic Journal reported Monday.
The plan is aimed at lessening financial risk from a ballooning debt pile by allowing lenders to reclassify their debt holding into good and bad loans, the report said, citing Christina Chung, senior portfolio manager of Allianz Global Investors Hong Kong Ltd.
The government will take over the bad loans and the good ones will be subject to refinancing by the private sector, the report said.
Credit risk in the banking system, exacerbated by local government debt, and uncertainty over the renminbi have caused an outflow from China’s stock market.
The plan is expected to lower risk in the banking sector and improve stock valuations which have been under pressure.
And with potential cuts in the lenders’ reserve requirement ratio, up to 600 billion yuan of liquidity could be unleashed, boosting the stock market.
Counters related to railway infrastructure, sports equipment, consumption, tourism and environmental protection are also likely to benefit, Chung said.
Translation by Vey Wong
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