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

Official Audit Data Points to Surging Bad Debt in Henan Province

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A new report from China’s National Audit Office (NAO) points to a worrying volume of non-performing loans amongst some regional lenders, with bad debt especially pronounced in Henan province.

NAO has just released its “2019 Public Announcement No. 1: Q4 2018 Tracking Auditing Results for the Implementation of Major National Policy Measures” (2019年第1号公告:2018年第四季度国家重大政策措施落实情况跟踪审计结果), which provides data on risk in relation to regional financial institutions.

According to the audit report there are still seven regions across China where a significant number of financial institutions are best by problems including high NPL ratio’s, low provision coverage ratios and low capital adequacy ratios.

In Henan province bad debt levels are especially high with 42 regional commercial banks reporting NPL ratios above 5% as of the end of 2018, including 12 banks with ratios in excess of 20% and some above the 40% level.

The NAO report further indicates that low provision coverage ratios have emerged as problem in the provinces of Jilin, Shandong, Hunan and Guangxi.

23 lenders in Jilin province (including 9 rural village commercial banks and 14 rural village credit cooperatives), 78 banking sector financial institutions in Shandong province, 16 rural lenders in Hunan province and 10 rural lenders in Guangxi reported provision coverage ratios that were beneath the mandated levels of 120% to 150% as of the end of 2018.

NAO has also sounded the alarm on low capital adequacy ratios in Hainan provinces, where 14 rural cooperative financial institutions posted ratios beneath the mandatory minimum of 10.5%, accounting for 73.68% of all provincial lenders within the category.

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