zeb.market.flash (Issue 15 – October 2015) Banking industry hit hard by market turmoil in China - is China causing the next financial crisis?

Key topics

1. State of the banking industry

  • Despite good P/L results in the last quarters, global banks’ market capitalization dropped sharply by -16.8% in Q3 2015 due to market turmoil in China
  • Only six of global top 100 banks with positive total shareholder return
  • Debt markets with significantly increased CDS spreads

2. Key banking drivers

  • Economic condition in Western Europe remained stable-US growth declined again
  • After a sharp increase in Q2 2015, long-term interest rates in Germany and the US dropped again, leading to flatter yield curves
  • NPL ratios in BRICS and especially in China continued to rise effects on European and American banks are expected

3. Special topic: Is China causing the next financial crisis?

  • Liberalization of the exchange rate regime in China led to a strong depreciation of the CNY and together with weakened economic growth rates to a crash of stock markets
  • Direct consequences for banks include depreciations on Chinese investments whereas indirect effects may lead to higher non-performing loans and losses for industry companies invested in China affecting banks’ P&Ls in the upcoming quarters

Picture: Skyline Miami

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Author Dr. Dirk Holländer

Dr. Dirk Holländer

Senior Partner Office Frankfurt

Volker Abel

Senior Manager zeb Frankfurt
Author Dr. Ekkehardt Bauer

Dr. Ekkehardt Bauer

Senior Manager Office Münster

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