By Huw Jones

LONDON (Reuters) – Bank of England Deputy Governor Sam Woods said on Thursday that Britain’s banks have no major exposures to Evergrande and he does not expect the troubled Chinese property group to “go badly wrong”.

Woods stated that the direct exposures of UK banks and insurers to Evergrande were not significant, thus it is not a problem in the first round.

But the real question for everyone is: How will China’s authorities handle the situation? Could it be something bigger? It is possible that this could be a problem.

According to the BoE, Evergrande exposures have been checked by British banks. This year’s Stress Test scenario for Britain’s Lenders included a “hard landing” in China.

Woods stated that “my base case” is that it will not go wrong.

“I’m very optimistic that the Chinese authorities are going to try and find a solution. It won’t cause any major problems.”

FLASHING AMBER

Evergrande and “blow ups” at hedge fund Archegos and finance company Greensill were symptoms of a market getting ahead of itself, Woods said.

He said, “I believe we can feel proud about the way the financial system has made it through COVID. But of course that was with enormous fiscal and monetary support to the economy that protected (it from) the full impact of the blow.”

As we emerge, I think financial markets look very frosty, especially if you take a closer look.” he said.

Numerous indicators around the globe were currently “flashing orange”, especially in the housing and debt markets. A correction was “clearly possible”.

Woods stated that it was a difficult environment and advised people to be vigilant.

He said that the recovery from the pandemic, which triggered the largest downturn in British history in over 300 years, requires a stable financial system.

Woods said that while we’re not yet at the stage of taking specific actions, he believes they are keeping an open mind and are monitoring with a slightly jaded eye.