China’s Big Six Banks Still Face Asset Risk Despite NPL Ratio Improvements: Moody’s


China’s big six banks will continue to grapple with asset risk in 2019 despite improvements to bad debt metrics last year according to a recent report from Moody’s Investors Service.

The Moody’s report indicates that Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Industrial and Commercial Bank of China and Postal Savings Bank of China all posted declines in their non-performing loans (NPL), special mention loans and 90-plus day overdue loans relative to total lending in 2018.

The average NPL ratio of the big six fell to 1.46% at the end of last year from 1.51% at the end of 2017, while special mention loans saw the biggest decline, falling from 3.08% to 2.67% over the same period.

90-plus day overdue loans fell to 1.05% at the end of 2018 from 1.15% the year previously.

Loan growth of the big six state-owned banks was 8.8% in 2018, as compared to asset growth of 6.6%.

Moody’s points out that formation rates of bad assets saw a significant rise in the first half of 2018 despite a decline in dud debt metrics, imputing the increase to the imposition of stricter recognition benchmarks as well as the business woes of borrowers.

The ratings agency expects moderate asset growth and steady profitability to help stabilise the capitalisation of the big six banks in 2019.

“We maintain a stable credit outlook on these six large banks’ performance over the next 12 -18 months,” said Moody’s senior vice president Ray Heung.