Kyle Bass, a fund manager, recently was seen on CNBC speaking about a theory he has developed about the future of Asian banking and the emphasis on China banking as well.
He feels that Chinese banks have become so large that a severe slow down is inevitable. This has enlarged the gap between banks and the GDP (Gross Domestic Product). He feels that the only natural step that will follow will be a “loan-loss cycle”.
While lots of Asian banks lend to China, when this slow down happens, Asian banks will suffer more than the Chinese if the growth and loan systems slow down. The Chinese banking system will recover through government resources. Trends in the past help contribute to Bass’s theory. The trends and consequences from 2008-2009 and then again in 2011 lend credibility to his theory. The Chinese banking system has significant impact on the world-wide economy. All eyes are watching and waiting to see what will happen.
Kyle Bass talks on his blog about emerging or beginning banking systems that grow so quickly that they GDP gap is way to big. This is a large indicator that there is a problem looming on the horizon. History repeats itself and in the area of banking it is no different. A natural slow down will occur and the credit growth will slow down as well. This is not necessarily a bad thing but it will cause some trouble over the next two years for Asian banks. It won’t destroy the system just slow down the fast pace in which it has seen over the last eight to ten years.
Kyle Bass is not predicting a global financial break down but he studies banking and keeps up with the latest trends and creates theories that can sometimes warn us of financial problems, even if some think he’s more of a gambler than an investor.