Non-performing Loans of Chinese Small Businesses Will Rise in 2021, Disposal to Expand in H2 2020: Banking Regulator

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Senior banking officials anticipate a rise in the dud debt of micro-and-small enterprises (MSE) next year, while also flagging accelerated efforts to dispose of non-performing loans (NPL) in the second half.

Li Junfeng (李钧锋), chair of the financial inclusion department of the China Banking and Insurance Regulatory Commission (CBIRC), said that the NPL balance of MSE’s had grown 9.25% since the start of the year, while the NPL ratio was at 2.9%, 0.88 percentage points higher than the figure for all loans.

“Overall, this is still within our NPL tolerance threshold,” said Li.

Li pointed out that MSE NPL’s are likely to rise next year due to adverse economic and financial conditions, but that CBIRC and the banking sector had “sufficient capability and tools to deal with the pressure of a rise in NPL ratios.”

Li made the re­marks at a rou­tine press con­fer­ence of the State Coun­cil held on 25 Au­gust, with the par­tic­i­pa­tion of se­nior of­fi­cials from the Peo­ple’s Bank of China (PBOC) and CBIRC.

Xiao Yuanqi (肖远企), CBIRC’s chief risk officer, said that in the first half of 2020 China disposed of 1.1 trillion yuan in NPL’s, for an increase in 160 billion yuan compared to the same period last year. In the second half the Chinese banking system will endeavour to dispose of over 3 trillion yuan in NPL’s.

At present the capital adequacy ratio of Chinese banks is 14.21%, higher than regulatory requirements, although regulators will “see to it that banks had sufficient capital to withstand risk as well as provisions levels.”

“Even though we have reduced the provisions coverage ratio this year, it is still necessary for financial institutions to prepare provisions on the basis of anticipated credit loss, put risk prevention to the fore, and engage in early discovery, early disposal and early prevention, to destroy risk while it’s in an incipient state” said Xiao.

Liu Guoqiang (刘国强) said that Chinese banking sector is “operating steadily, with the capital adequacy ratio of 14.21% as of the end of the second quarter marking a decline of 0.43 percentage points since the start of the year, yet still higher than the 10.5% regulatory requirement.

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