More than a third of the world’s largest banks have their headquarters in emerging markets.

Emerging market banks have little trouble funding themselves.  Many emerging countries, especially i Asia, have high savings rates.  This leaves lenders with more deposits than loans.

Unlike their Western counterparts, emerging-country banks o not have risky investment banking arms.  Yet profits can be wiped out by bad loans, which are increasingly being extended by “extend and pretend”, which gives companies which have little prospect of re-paying a loan years of forebearance.

Chinese banks report non-performing loans at 1.6% of assets, but share prices in these banks suggest that the market thinks dud loans represent closer to 8% of assets   How quickly these banks admit their failings will determine their future health.

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