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Best of the Web

The "Best of theWeb" rounds up some of the more noteworthy recent coverage we haveencountered on issues affecting the Asia-Pacific financial sector. Please notethat some links may require a subscription.

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CLSASees China Bad-Loan Epidemic With $1 Trillion of Losses

Chinese banks may be facing potential losses of up to 9.1trillion yuan from bad loans that may be at least 9× bigger than officialnumbers show, Bloomberg News reported, citing an assessment by brokerage CLSALtd. Chinese banks' nonperforming loans stood at 15% to 19% of outstandingcredit in 2015, said Francis Cheung, CLSA's head of China and Hong Kongstrategy. Potential losses could range from 6.9 trillion yuan to 9.1 trillionyuan. Meanwhile, bad credit in shadow banking could lead to a loss of 2.8trillion yuan. CLSA said China's banking system needs a comprehensive solutionfor the bad-debt problem, warning that bad loans could rise to 20% to 25%.

Banksmove forward on cashless payment system

Cashless payments in Thailand are set to take off afterbanks finalize a new structure for transactional fees and invest in electronicdata capture, The Nation reported.Members of the Thai Bankers' Association have agreed on a new fee structurethat will see lower charges for digital banking, according to Yos Kimsawatde,head of the Thai Bankers' Association's Payment System Office. This developmentis expected to lead to an increase of between 50% and 60% for cashless paymentsin five years. The Thai government is in the process of implementing a nationale-payment program. The first stage of the program involves centralregistration, which will allow people in the program to use their mobilenumbers or national ID numbers for payments to merchants on Oct. 31. The secondphase of the program is investment by banks in electronic data capture units.The big banks will form a consortium to oversee investment in the technologyand will work towards increasing the number of electronic data capture units by600,000 to 700,000 this year.

Japanto scrutinize banks' stress tests, stopping short of Fed

Unlike financial regulators in the U.S. and Europe, Japan'sFinancial Services Agency has no plan to impose stress tests on the country'sbiggest banks, Bloomberg News reported. The Japanese financial regulator willtake a different path from its overseas peers and will instead look for ways toverify the banks' own reviews. FSA Commissioner Nobuchika Mori had said anintrusive supervisory approach excludes the sentiment of trust between banksand the regulator. The FSA may start looking at the stress tests of banks fromas early as the second half of 2016. The regulator may also analyze banks withinternational operations to assess if they are adequately reflecting risks suchas the economic performance of emerging nations in their stress tests.

Roadblocksin converting loans to equity

As China grapples with the idea of allowing banks to turnloans into equity as a means to control bad loans in the banking sector,India's Mint looks at how thismeasure has played out for local banks when the Reserve Bank of India allowedlenders to take a controlling stake in indebted companies. However, banks foundit difficult to change the management of indebted companies or sell the sharesin the companies where they have acquired majority shares. Analysts fromReligare Capital Markets found that banks might have to make a 60% to 80%writeoff to make the 17 restructuring cases viable. The scheme fails to addressthe bad debt problem entirely. The overall economic downturn may be a biggerreason for the increase in bad loans and not just mismanagement. In such cases,banks getting management control may not help that much. Another problem isthat there will not be enough buyers of shares in these burdened companies. Thescheme could perhaps work if the bad debt burden is cut and the business madeviable again.

JosephHealy start-up targets smaller firms unhappy with banks

A former executive of National Australia Bank Ltd. is set to launch a newventure akin to British challenger banks that will take advantage of the highlevel of dissatisfaction among small and medium-sized businesses with theirfinancial institutions, The Australian reported.Joseph Healy, who used to head NAB's business bank, has gathered a team of 10senior bankers to launch a venture that specializes in lending to SMEs. Theventure will be similar to the business model used by British challenger banksAldermore and Shawbrook. Aldermore has no physical branch network and servescustomers online. Healy believes that the SME market is ready for a new playergiven the high level of SME dissatisfaction with their banks. A recent East& Partners survey found that SMEs with an annual turnover of A$5 millionand A$20 million have a very low loyalty rating to their banks.