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

Non-performing Loan Ratio Rises at Eight Chinese Banks Following Launch of Stricter Benchmarks

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A slew of Chinese banks have posted an increase in their non-performing loan (NPL) ratios for 2018 following the implementation of stricter benchmarks that include debt overdue for more than 90 days, despite broad gains in revenues and net profits.

According to a report from 21st Century Business Herald as of 18 March two out of 31 listed banks have released their 2018 performance reports, while 22 banks have released they preliminary performance reports.

The reports indicate that at least eight Chinese banks have seen gains in their NPL ratios, including Bank of Zhengzhou, China Minsheng Bank, China CITIC Bank, Huaxia Bank, Ping An Bank, Bank of Guiyang, Bank of Changsha and Bank of Nanjing.

Bank of Zhengzhou saw the largest increase, with a rise of 0.97 percentage points, while Bank of Guiyang saw the smallest rise at 0.01 percentage points.

The increases arrive following Beijing’s adjustment to the rules for the categorisation of NPL’s in 2018 to bring them in line with international practice.

While standard international practice is for any loans more than 90 days overdue to be categorised as impaired, China launched the category of “overdue but not impaired” in 2011 to enable them to dodge categorisation as non-performing assets.

The China Banking and Insurance Regulatory Commission (CBIRC) recently announced that the asset quality of the Chinese banking sector remains stable in general, and that risk is under control overall.

As of the end of January 2019 the Chinese banking sector’s NPL ratio was 2%, for a fall of 0.04 percentage points compared to the preceding quarter.

Zhao Yarui (赵亚蕊), senior researcher with the Bank of Communications Financial Research Centre, said that the NPL levels of larger Chinese banks are comparatively stable and easy to control, yet asset quality is under greater pressure at small and medium-sized banks.

In regional terms NPL’s are concentrated in the north-east and west of China as well as the Bohai Rim, while NPL levels in the south-eastern coastal part of China remain comparatively low.

Non-performing assets are also mainly concentrated in China’s overcapacity sectors.

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