The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

Non-performing Loan Ratio of Chinese Banks Hits Decade-long High

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Official data indicates that the non-performing loan (NPL) ratio for China’s commercial banks rose to a 10-year high at the end of 2018.

Figures released by the China Banking and Insurance Regulatory Commission (CBIRC) on Friday point to an NPL ratio of 1.89% at the end of last year, with the total NPL’s of commercial banks standing at 2 trillion yuan, unchanged form the third quarter.

“Special mention loans” – or loans considered at risk of becoming non-performing, hit 3.4 trillion yuan as of the end of 2018, compromising 3.16% of all lending by Chinese commercial banks.

Liu Zhiqing, deputy head of CBIRC’s statistics department, nonetheless said that “risks remain under control overall.”

Xiao Yuanqi, CBIRC chief risk officer, said that Chinese banks also stepped up their handling of bad loan disposal last year with the disposal of almost 2 trillion yuan in dud assets, for a near 43% YoY leap compared to 1.4 trillion yuan in 2017.

Analysts previously predicted that key adjustments to China’s official definition of non-performing loans would result in a surge in the reading for 2018.

UBS analyst Jason Bedford went so far as to forecast that the adjustments would lead to a 14% YoY leap in NPL’s in 2018.

A report released towards the end of December pointed to wild divergence in the net profits and NPL’s of Chinese banks in 2017, with a heavy concentration of the latter amongst rural and municipal commercial banks.

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