As devaluation causes businesses debt burdens to grow in renminbi terms, the risk of non performing loans and bankruptcies rises.

The country remains the world s largest creditor, and has slowly but steadily eliminated enormous non performing loans in its banking sector.

Loans Non banks

Moreover , the high level of non performing loans in the financial sector contributed to a lowering of stock prices in Japan during 2001 .

In the financial sector , there has been a moderate deterioration in capital adequacy as non performing loans have increased in line with expectations .

Asset quality deterioration is still a problem, with impairment levels remaining high at about 6 of total gross loans and non performing loans at elevated levels (10.6 ), in particular in the corporate segment (over 16 ).

2.1 Non marketable assets ( bank loans ) Currently , non marketable assets ( including bank loans ) are eligible in six countries .

( c ) Loans outside the euro area Loans to and non marketable securities issued by non euro area residents

( c ) Loans outside the euro area Loans to and non marketable securities issued by non euro area residents

This would have discouraged undue investment in some sectors, reduced non performing loans, and contained excessive leverage in the corporate sector, while avoiding the mispricing of commodities.

An ever increasing capital stock relative to output, however, means ever lower returns to capital and thus ever more non performing loans in the banking sector over time.

Loans to MFIs to non MFIs 3 .

( c ) Loans outside the euro area Loans to and non marketable securities issued by non euro area residents ( c ) Loans outside the euro area Deposits at nominal value , non marketable securities at cost

( c ) Loans outside the euro area Loans to and non marketable securities issued by non euro area residents ( c ) Loans outside the euro area Deposits at nominal value , non marketable securities at cost

Sector loans as a percentage of total MFI loans to the non financial private sector ( excluding non profit institutions serving households )

Transactions in other loans ( liabilities ) non consolidated 2B .

Transactions in other loans ( liabilities ) non consolidated 2B .

In a study of loan data from five Chinese banks, a team of researchers and I identified five factors that influence the emergence of non performing SME and consumer loans.

In Japan , stock prices declined during the first four months of 2003 , following market concerns about non performing loans in the Japanese banking sector that continued to negatively affect stock prices .

Bank loans to non financial corporations 41.8 38.2 72.8

Simply put, more liquidity will not lead to more active bank lending until there is more transparency regarding the extent of non performing loans and the relevant economies have become more flexible.

Non MFIs General government 8 General government debt denominated in euro Other assets Domestic Loans Domestic Loans

Cash Loans a. to MFIs b. to non MFIs 3 .

5 , plus transactions in other loans ( liabilities ) non consolidated 2B .

From non financial corporations Repos Loans in EUR To households

2 Non financial corporations By maturity ( 3 bands ) Loans Non financial corporations NonMFIs Other residents Non financial corporations 3 Claims on euro area residents denominated in foreign currency 11 Loans Other assets Other participating Member States Other participating Member States Loans Households

The still weak annual growth rate of bank loans to the non financial private sector continues to conceal positive growth in loans to households and diminishing negative annual growth in loans to non financial corporations .

Claims on non euro area residents denominated in foreign currency receivables from the IMF Claims on non euro area residents denominated in foreign currency balances with banks and security investments , external loans and other external assets Loans Claims on non euro area residents denominated in euro balances with banks , security investments and loans Other assets Rest of the world Loans Non banks

Claims on government stemming from before EMU ( non marketable securities , loans )

Claims on government stemming from before EMU ( non marketable securities , loans )

5 , plus other transactions in other loans ( liabilities ) non consolidated 2B .

Claims on government stemming from before EMU ( non marketable securities , loans )

MFI loans to households and non financial corporations ( end of period

Claims on government stemming from before EMU ( non marketable securities , loans )

The quarterly sectoral breakdown of loans granted by euro area MFIs to the non financial private sector shows that in 2001 the growth of both loans to non financial corporations and loans to households declined ( see Table 2 ) .

Claims on non euro area residents denominated in foreign currency receivables from the IMF Claims on non euro area residents denominated in foreign currency balances with banks and security investments , external loans and other external assets Loans Loans

Other participating Member States a b c EU countries Loans Non MFIs

( c ) External loans Deposits at nominal value , non marketable securities at cost

11 is equal to transactions in other loans ( liabilities ) non consolidated 2B .

( c ) External loans Deposits at nominal value , non marketable securities at cost

11 is equal to transactions in other loans ( liabilities ) non consolidated 2B .

Performing

As private consumption spending declined and business fixed investment decelerated , overall GDP growth contracted in the second and third quarters of 2001 , causing concern about an increase in non performing loans and financial sector health in general .

With the government lacking fiscal room, and Greek banks burdened by non performing loans, it is important to mobilize the state s remaining assets and unclog the flow of bank credit to healthy parts of the private sector.

Imagine further that the bad bank helps the financial sector, which was recapitalized generously by strained Greek taxpayers in the midst of the crisis, to shed their legacy of non performing loans and unclog their financial plumbing.