The non-performing loan ratio for Chinese banks has held steady at the same level for the fourth successive quarter, as big state-owned lenders succeed at dialling down dud assets.
The latest data from the China Banking Regulatory Commission indicates that the NPL ratio for commercial banks in the third quarter was 1.74% – the same level it’s been since the fourth quarter of 2016.
According to CBRC data the commercial bank non-performing loan balance was 1.67 trillion yuan as of the end of September 2017, for an increase of 34.6 billion yuan compared to the end of the second quarter.
The special-mentioned loans balance was 3.42 trillion yuan, for an increase of 5.7 billion yuan compared to the second quarter. The special-mentioned loans ratio is 3.56%, for the third successive quarter of decline.
NPL performance varied considerably amongst Chinese banks, however, with big state-owned banks seeing marked declines this year, while joint-stock banks and rural banks posted increases and municipal banks held steady.
The big banks, for example, have seen their NPL ratio fall to 1.54% this year, for a 10 basis point fall compared to the start of 2017.
Rural banks have seen NPL’s rise continuously, however, to 2.95% in the third quarter from 2.55% at the end of the first quarter.
Sources have also said to Caixin that some local authorities are inclined to use administrative measures to interfere with data and conceal the true extent of non-performing loans.
“They don’t care what method is used, as long as the NPL data they’ve submitted shows a definite decline,” said once source. “This isn’t the case for just one area.”
Bank of Communications chief economist Lian Ping said that several factors contributed to a plateauing of the overall NPL ratio across the past several quarters, including an improving macroeconomic environment, adjustments to China’s economic structure, as well as commercial banks becoming more adept at the disposal of NPL’s.
Lian nonetheless points out that the absolute value of special-mentioned loans remains high, and that risk still lurks within the asset composition of China’s commercial banks, with NPL’s still likely to increase.
According to Lian the default risk on the bond market could have a definite impact upon bank credit assets.
Official data indicates that for the first ten months of this year China saw a total of 36 bond defaults, on a total amount of 25.5 billion yuan.
“Companies that can engage in direct financing via the bond market are usually medium to large-scale enterprises that occupy a leading position in their industries,” said Lian. “An increase in the default incidence of these companies not only indicates that their own operating circumstances, capital conditions or investment strategies have problems, it also indicates that certain industries are seeing problems in general.”