One of China’s leading state-owned asset management companies does not expect non-performing financial assets to reach a peak until 2019 or later.
China Orient Asset Management’s “2017: China Financial Non-performing Asset Market Survey Report” said that the non-performing loan balance and non-performing loan percentage of Chinese commercial banks will both see upward “pressure” this year, expecting them to rise to 1.7 trillion yuan and 1.7% respectively by the end of 2017.
The report claims that the NPL balance of Chinese commercial banks will continue to increase in the wake of lower-level macroeconomic performance and deepening structural adjustment, although the rate of NPL growth already shows signs of stabilisation.
NPL’s will also continue to slowly rise over the next three to five years, with China Orient not foreseeing a peak in NPL’s until 2019 or later.
The 2017 report released on 18 July is the tenth such survey of financial non-performing assets conducted by China Orient, making use of written surveys and data analysis as its primary research tools for forecasting the future direction of China’s NPL market.
The surveys were conducted during the period from 21 April to 5 May 2017, collecting the views and opinions of NPL market participants.
Screening analysis by China Orient found that GDP growth, exchange rate growth, urbanisation growth rates, lending prime rate growth, bank asset-debt ratio growth and provision coverage growth all had strong impacts upon the NPL rates of commercial banks.
Increases in GDP growth, exchange rates and the lending prime rate in particular could spur an increase in the NPL rates of commercial banks, in the form of “crude” GDP expansion without structural adjustments, increases in the RMB exchange rate that hampers exports, and increased borrowing and financing costs.
Over the next year the five sectors that will see the largest volume NPL’s will be manufacturing, wholesale and retail sales, real estate, mining and construction, while NPL pressure will continue to be strong in overcapacity sectors and domestic industrial enterprises.
According to the report corporate debt risk is the main source of risk for China’s macroeconomy at present, yet remains within a “controllable” scope. The manufacturing sector will become a major source of NPL’s for banks, while fraudulent corporate will be a key driver behind NPL increase.
Credit risk will remain the primary source of risk for commercial banks, with an increase of risk in relation to real estate development lending. The rate of increase in real estate NPL’s will outpace that for construction sector NPL’s.
The Chinese north-east will become a concentrated area for NPL’s, while the withdrawal from the market of overcapacity sector or zombie companies will have a negative impact upon the NPL rates of commercial banks, especially in the steel smelting sector.