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

Bad Loans Rise to 16 Year High in Q1 2019 as Beijing Tightens Recognition Standards

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Non-performing loans in the Chinese banking sector have lifted to a sixteen year high amidst a push from regulators to tighten up recognition standards for bad debt.

Official data released on Friday indicates that the NPL’s of Chinese commercial banks hit 2.16 trillion yuan (approx. USD$317.66 billion) as of the end of March, for its highest level since the end of 2003.

Liu Zhiqing, deputy head of the statistics department of the China Banking and Insurance Regulatory Commission (CBIRC) said that the figure marked a rise of 95.7 billion yuan since the start of 2019.

The industry-wide NPL ratio saw a modest decline to 1.8% at the end of the first quarter, however, as compared to 1.89% at the end of 2018.

Chinese banks disposed of bad loans worth around 368.9 billion yuan across the first quarter, for an increase of 30.9 billion yuan compared to the same period last year.

Lenders also managed to improve their capital health in the first quarter, with the capital adequacy ratio of commercial banks rising 0.57 percentage points YoY to 14.18% at the end of March.

The provision coverage ratio lifted by 3.13 percentage points over the first quarter to 192.2%.

Beijing released draft regulations last month that tighten recognition standards for bad loans, including the classification of loans that are more than 90 days overdue as NPL’s irrespective of their collateral backing.

Liu said that CBIRC would also push for banks to classify loans that are more than 60 days overdue as NPL’s, yet not make their inclusion mandatory.

According to Liu the new rules will only have a “limited impact” on the asset quality of Chinese banks, and will not result in a dramatic rise in bad debt.

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