Two-thirds of all readings above 10 percent have been followed by serious banking strains within the subsequent three years, according to the BIS.
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China’s credit-to-gross domestic product “gap” stood at 30.1 percent, the highest for the nation in data stretching back to 1995, according to the Basel-based Bank for International Settlements.
The shift towards using the euro as a financing currency continued as the divergence in monetary policy between the euro zone and United States widened the gap between euro and US yields.
While global credit was broadly weak, some countries showed “unusually high” credit growth relative to the size of their economies, flashing warning signs of potential financial overheating and distress in the months and years ahead.
As credit through debt securities markets grew by 4 per cent year on year, however, total USA dollar credit (bank loans plus debt securities) to non-financial borrowers outside the United States edged up by 0.8 per cent year on year, to $7.9 trillion at end-March 2016.
In its latest quarterly review, the BIS also said the markets has revealed resilience following the vote to leave the European Union of the UK.
The BIS put China’s debt level for the period above all countries in the survey, which covered 41 nations including the United States, Greece, and the United Kingdom.
Because China is a key driver of world growth, a crisis in the country’s banking sector could have catastrophic implications around the world, with the global economy still struggling to recover from the 2008 financial crisis.
China’s “Big Four” state-owned banks reported mounting bad loans in the first half of the year, and earlier in the summer an official with the banking regulator said lenders had written off more than 300 billion of bad loans in the past three years.
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But China’s authorities hope that new measures, including debt-for-equity swaps, will tackle the bad loans issue. In China’s case, though, the warning indicator has mostly been above that threshold since mid-2009.
