Growth in NPL’s Amongst China’s Big Four Banks Eases


China’s big four banks are pursuing concerted measures to reduce non-performing loans as economic expansion eases and profit growth slows down.

The latest slew of annual report releases by China’s big four banks reveals a marked slowdown on the growth of non-performing loans in terms of both balance size and percentage.

Amongst the big four banks of China, both Agricultural Bank of China and China Construction Bank posted incremental decreases in their NPL rates, while for ICBC and Bank of China the figures only saw slight gains.

Figures from ABC show that last year it finally managed to break ongoing trend of growth in its NPL rate since 2013. As of the end of 2016 the bank’s NPL rate was 2.37%, for a year-on-year fall of 0.02 percentage points.

ABC’s NPL balance was 230.8 billion yuan, for just a slight year-on-year gain.

CCB also posted a marginal year-on-year reduction in its NPL rate, which fell 0.06 percentage points to 1.52%. The bank’s NPL balance is 178.69 billion yuan, for an increase of 12.71 billion compared to 2015.

“In 2016 NPL growth rates and overdue loan growth rates both eased,” said CCB fchief financial officer Xu Yiming. “There it the same trend in both overdue loans and NPL’s, when originally overdue loans are higher than NPL’s.

“Overdue loans are a portending indicator of NPL’s, and an ease in growth of overdue loans means that pressure on NPL’s should relent in future.”

Aside from the big four banks, other joint-stock banks also saw slight decreases in their NPL rates, including Everbright (601818), who posted a year-on-year fall of 0.01 percentage points, and China Merchants bank, whose overdue loans and NPL’s both logged declines.

Keeping a lid on non-performing loans has becoming increasingly important to the banks as economic growth eases in China, and risks emerge in relation to the quality of loan assets.

According to one analyst a slowdown in economic growth and continued trend of sliding bank profits means that the issue of non-performing loans will continue to put pressure on banks, who will need to resort to measures such as write-off or transfers to bolster their asset quality.

Ongoing efforts to reform the supply-side structure and a change in China’s economic model will bring opportunities for the banks to reduce their NPL’s.

Economist Yi Huiman has revealed that ICBC has spent 179 billion yuan in provisions to write-off or dispose of nearly 500 billion yuan in NPL’s.

ICBC is expected to spend a further 65 billion in provisions to address the problem of nearly 200 billion yuan in remaining NPL’s.

Efforts to reduce NPL’s are also making the banks more cautious about lending to underperforming sectors.

Last year ABC cut down on loans to industries with overcapacity issues, such as coal and steal, as well as low-end manufacturing, reducing its credit to high-risk sectors by 212.6 billion yuan to 947.4 billion yuan.