A new report from Fitch Ratings’ wholly owned Chinese bond agency highlights the vulnerability of municipal commercial banks in China to the economic impacts of the COVID-19 pandemic.
A report released last week by Fitch Bohua sees municipal commercial banks posting a greater increase in non-performing loans than big state-owned banks and joint-stock banks in the second half of 2020, should economic growth flag as a result of COVID-19.
Fitch outlined a worst case scenario of economic growth of just 1% in China in 2020.
Under these conditions municipal commercial banks would see the bad loan ratio rise 3.44 percentage points, as compared to increases of 2.62 percentage points for joint-stock lenders and 1.92 percentage points for state-owned lenders.
Under two other scenarios where GDP growth is 3% and 5% in 2020, municipal commercial banks are also expected by Fitch to see far greater increases in NPL’s than their joint-stock and big state-owned peers.
The China Banking and Insurance Regulatory Commission (CBIRC) previously said that “upwards pressure on non-performing assets is expanding” in mid-July during the release of first half financial data.
CBIRC called for preparations against a “potential large-scale rebound” in the second half.
As of the end of June the NPL balance was 3.6 trillion yuan, for an increase of 400.4 billion yuan compared to the start of the year.
The NPL ratio was 2.10%, for a rise of 0.08 percentage points compared to the start of 2020.
Since 2019 China’s regional banking sector has been roiled by a series of potential bank runs and bank failures, prompting regulators to take over Inner Mongolia’s Baoshang Bank in May of last year.