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The Impact of Local Governments' Debt Swap Program on Listed Banks (No 138, 2015)


By Zhu Hongming, Research Team of "Analysis of Listed Banks", Research Institute of Finance,DRC

Research Report No 138, 2015 (Total 4823)


This paper aims at a quantitative measurement of the impact imposed by local governments' bond-for-debt swap program on listed banks. Based on the scale of the swap, it hypothesizes three basic scenarios, namely, Scenario 1, Scenario 2 and Scenario 3, with an equivalent swap scale of 2 trillion yuan, 3 trillion yuan and 4 trillion yuan respectively. The research findings show that the profitability of listed banks suffered little from the swap, with net interest margin cut down by 0.65, 0.81 and 0.91 basic points under Scenario, 1, 2 and 3, and net profit falling by 7.191 yuan, 8.989 yuan and 10.067 billion yuan respectively. While under the same scenarios, the capital adequacy ratio of listed banks was improved due to local governments' bond-for-debt swap, with tier-one capital adequacy ratio rising by 0.03, 0.05 and 0.07 percent; however, the listed banks will have to endure increased pressure from a rebounding non-performing loan ratio, which can rise to 0.012, 0.017 and 0.023 percent respectively under Scenario 1, 2 and 3.