Chinese Banks Yet to See a Peak in Non-performing Loans: CINDA

Chen Yanqing (陈延庆) of China Cinda Asset Management says that while growth in the non-performing loan balance of Chinese banks has slowed, a stricter regulatory environment could bring more illicit transactions to light in the second half.

Speaking in Hong Kong following the release of first half results by China’s banking sector, Chen said that while the first half NPL ratio held steady with 2016, the total balance of bad debt continues to see gradual growth.

According to Chen as China’s financial regulators ratchet up their scrutiny of the banking sector a greater number of non-compliant asset transactions between banks are sure to come to light.

Chen further notes that the China’s economic growth is still in a downward phase, which means that the NPL balance has yet to see a peak and is likely to continue to increase.

He nonetheless expects the NPL ratio by the end of 2017 to hold steady with last year.

At its mid-year work meeting the China Banking Regulatory Commission made guarded comments about the potential for a rebound in NPL’s.

“At present the banking sector risk prevention and control situation remains complex and challenging, and pressure behind a rebound in non-performing assets remains large.”

According to CBRC this will necessitate the adoption of multiple measures to prevent NPL growth, including strengthening the ability of financial institutions to dispose of NPL’s, as well as preventing excessive concentration in new loans.

This emphasis from regulators has prompted many Chinese banks to establish their own asset management companies (AMC) over the past year in order to increase their ability to dispose of NPL’s.

According to Chen Yanqing the establishment of local AMC’s has intensified market competition, while the prompt disposal of NPL’s by banks will be of benefit to the healthy and stable growth of the sector.

Data from the CBRC indicates that the NPL balance for Chinese commercial banks hit 1.58 trillion yuan by the end of the first quarter, for a year-on-year rise of 13.5% and an increase against the preceding quarter of 4.4%. 

The first quarter commercial bank NPL ratio was 1.75%, for a year-on-year decline of 0.01 percentage points.

By the end of the second quarter the NPL balance had increased to 1.64 trillion yuan, for a year-onyear rise of 14.1% and an increase of 3.8% against the second quarter.

The NPL ratio was 1.74%, for a year-on-year slide of 0.01 percentage points.

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