Chinese Banks Dispose of $880 Billion Non-performing Loans in Three Years, More than Total for Preceding Eight Year Period

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The latest financial stability report from the Chinese central bank points to a sharp acceleration in efforts by banking-sector financial institutions to dispose of non-performing loans over the past several years.

The “China Financial Stability Report (2020)” (中国金融稳定报告(2020)) recently released by the People’s Bank of China (PBOC) indicates that Chinese banking-sector financial institutions disposed of 5.8 trillion yuan (approx. USD$880 billion) in non-performing loans (NPL) over the past three years, which is more than the sum for the preceding eight year period.

This has led to slowing growth in China’s macro-leverage ratio, which rose just five percentage points in 2019 from 249.4% at the end of 2018, as compared to an average annual increase of 10 percentage points during the period from 2008 to 2016.

The Report also highlights efforts to contain risk in relation to online finance and illegal fund-raising in China, with P2P online lending platforms dropping to just 29 as of the end of the second half of 2020 as compared to around 5,000 during their peak, and the volume of loans and participating individuals declining for the 24th consecutive month.

PBOC said in the Report that it would accelerate efforts to improve the fintech regulatory framework, and that the next step would be for financial regulatory authorities to improve overall planning and coordination, as well as strengthen top-level regulatory design.

Key measures will include the following:

  1. Make innovative regulatory tools the foundation, and improve risk control systems.
  2. Make regulatory rules the core, and promptly unveil targeted regulatory rulesets to ensure that fintech operations in China are compliant, the technology is safe and risk is preventable and under control. According to PBOC this will resolve the problems of regulatory “blanks” and regulatory arbitrage created by laggard regulatory efforts.
  3. Make digitisation the “method,” create digital regulatory report platforms, use artificial intelligence to achieve “manifestation, digitisation and proceduralization” of regulatory rulesets. Accelerate the development of digital regulatory capability, raise the comprehensiveness and specialisation of regulation.

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