Chinese Audit Agencies understates banks exposure to local government

As per Moody’s report today, Chinese banks loan to local governments is around 3.5 trillion yuan ($540 billion), almost 10% of Chinese GDP. “The Chinese audit agency could be understating banks’ exposure to local governments,” as per a Moody’s analyst from Beijing

Moody’s estimates that Chinese local governments’ debt is about 1/3 rd more than the audit office’s findings of 10.7 trillion yuan. Non-performing loans could reach as much as 12% of total credit, means somewhere above $280 billion and 6% of country’s GDP. So, there is a possibility of rating cut of Chinese Banks by agencies.