A huge amount of bad debt led to the global financial crisis. People who were not safe bets were provided credit cards, loans, and cash advances. Though these individuals may have appeared like safe bets during a good economy, the truth was revealed when the economy took a turn for the worse. The other factor contributing to the financial crash was bad information.
Such information is causing issues for financial institutions within developed countries, such as Bank of America and BNP Paribas. No one knows the extent of real estate lending that Bank of America has on its books. The risks of BNP Paribas exposure to possible losses from sovereign debts of Spain and Italy are also unknown. This lack of information is now becoming a trend within emerging economies.
China recently announced its planned multi-billion dollar bad debt assumption from local governments. However, total bad debts could be much larger, as off-balance sheet loans are not included. Information regarding Chinese debts is not plentiful even to the Chinese. This could result in issues more severe than the poor grade issued to China by ratings agency Fitch.
Sixty percent of the countries that received the same score as China ended up with a banking crisis within just a few years. China is not alone, as emerging market economies have grown over seven percent since 2009 and may be characterized by credit issues. However, it is very difficult to discover the extent of these problems.
Take India, where at least 17 percent of outstanding loan assets may be near default. Debt ratings for Indian companies are declining at their fastest rate since 2009. The State Bank of India, its largest lender, saw a 77 percent increase in bad loans and a 99 percent decline in net income from January through March 2011. Events like these are definitely cause for worry.
[...] Unpaid Invoices Present Even Within Emerging Markets [...]
[...] Unpaid Accounts Present Actually Within Emerging Markets [...]