Banks in BRICs Signaling Credit Crisis

Banks in the biggest emerging markets are losing the confidence of investors as loans turn sour after a two-year credit binge, Bloomberg reports.

Brazil’s financial shares have lost more this year than counterparts in crisis-stricken Europe as consumer defaults hit a 12-month high in June and borrowing costs climbed to 46 percent. Bank stocks in China are trading at lower valuations than global emerging-market indexes for the first time since 2006. The country faces a financial crisis with bad debt that may jump to 30 percent of total loans, Fitch Ratings said.

In India, the cost of insuring banks against default has climbed to the highest level in a year. Loan-loss provisions at State Bank of India (SBIN), the nation’s largest lender, rose 77 percent in the first three months of 2011, while net income fell 99 percent.

“People are beginning to smell the credit cycle turning,” Michael Shaoul, chairman of Marketfield Asset Management and chief executive officer of New York-based brokerage Oscar Gruss & Son, said in an interview. “Credit cycles have tremendous momentum, and whenever they turn you want to pay attention,” said Shaoul, who recommends selling high-yield bonds in emerging markets and betting on further losses in bank shares……

http://www.bloomberg.com/news/2011-07-31/banks-in-brics-signaling-credit-risks-as-bad-loans-curb-growth.html