China to roll over $500 mn loan to State Bank of Pakistan for one more year

China has agreed to roll over a loan of $500 million that it has placed with the State Bank of Pakistan as Islamabad's official foreign currency reserves remain in a precarious position despite taking $44 billion in loans in the past five years.

The Express Tribune reported that the People's Bank of China, through China's State Administration of Foreign Exchange (SAFE), had deposited $ 500 million with the SBP in June 2012.

The loan is going to mature in the first week of June this year, but China has agreed to roll it over for one more year, said sources in the ministry of finance.

Pakistan cannot use the $500 million Chinese deposit and its only purpose is to shore up foreign currency reserves.

According to sources, the loan has been rescheduled at the same old terms. Since the money could not be utilised, the interest rate was only 1 per cent, they said.

During the week ended May 18, the SBP's gross reserves dropped $ 479 million to only $10.32 billion due to payments on account of external debt servicing. The reserves are barely enough for two months of imports and are below the International Monetary Fund's adequacy levels.

China's economy on brink collapse due to high borrowing: Chinese bank chief

Zhou Xiaochuan, the governor of China's central bank - the People's Bank of China (PBOC), has warned that China's financial system is becoming more vulnerable due to high levels of leverage, or borrowing.

Zhou, in an article published on the People's Bank of China's website, has warned about the prospect of potential financial problems in the world's second-biggest economy.

He argued that deepened reform and opening up are the key measures to proactively control such risks in China's financial sector.

The central bank governor called for eliminating "zombie" companies to avoid a financial crisis.

Zhou warned that risks of damage to the financial markets in China are "hidden, complex, sudden, contagious and hazardous".

"In sectors of the real economy, this is reflected as excessive debt, and in the financial system, this is reflected as credit that has been expanding too quickly," express.co.uk quoted Zhou as saying.

Zhou elaborated on the top three financial risks China is faced with: the high-leveraging ratio and liquidity in macro-finance; the credit risk in micro-finance; and cross-market and cross-regional shadow banking together with financial crime.
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