China’s Municipal Banks Especially Susceptible to Rise in Non-performing Loans Post COVID-19: Fitch Ratings

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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.

Related stories

Chi­na’s Bank­ing Reg­u­la­tor Warns of Large-scale Rise in Non-per­form­ing Loans Due to COVID-19

CBIRC Hopes to Ac­cel­er­ate Dis­posal of Bad As­sets with Bun­dle Trans­fers of Per­sonal NPL’s

CBIRC Says Im­pact of COVID-19 on Chi­na’s Bank­ing Sec­tor un­der Con­trol De­spite Rise in Non-per­form­ing Loans

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