Chinese Banks Expected to Dispose of over 1.67 Trillion Yuan in Non-performing Loans This Quarter

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Disposal of non-performing loans (NPL’s) by Chinese banks is expected to reach a peak in the fourth quarter of 2020 at the prompting of financial regulators.

Guo Shuqing (郭树清), chair of China Banking and Insurance Regulatory Commission (CBIRC), said that the full year NPL disposal amount is expected to reach 3.4 trillion yuan in 2020, as compared to 2.3 trillion yuan in 2019.

Given that the first three quarters of 2020 saw the disposal of 1.73 trillion yuan in NPL’s, domestic analysts forecast the disposal of 1.67 trillion yuan (approx. USD$254.8 billion) in the final quarter of the year at the behest of CBIRC.

Since the start of November China’s financial regulators have made repeated calls for the acceleration of NPL disposal, and released policy measures to facilitate disposal channels.

On 2 November Guo Shuqing convened a meeting which stressed “forward handling of a rebound in bank non-performing assets,” while on 6 November CBIRC chief lawyer Liu Shou (福寿) called for the acceleration of the pace of disposal of NPL’s alongside more accurate disclosures by lenders.

The “China Financial Stability Report (2020)” (中国金融稳定报告(2020)) released by the Chinese central bank on 6 November called for expanding the vigour of NPL disposal, support for capital supplementation channels for smaller lenders and improvements to corporate governance.

The Report further indicates that Chinese banking-sector financial institutions disposed of 5.8 trillion yuan (approx. USD$880 billion) in NPL’s over the past three years, which is more than the sum for the preceding eight year period.

Local authorities have released policies to help Chinese banks dispose of their bad debt, with Beijing’s banking regulator recently issuing the “Notice Concerning Proper Performance of Non-Performing Asset Disposal Work” (关于做好不良资产处置工作的通知), and Sichuan province issuing ten measures to support NPL disposal efforts, including allowing the participation of foreign investors.

CBIRC data indicates that as of the end of the third quarter of 2020 the NPL balance of Chinese commercial banks was 2.84 trillion yuan, for an increase of 98.7 billion yuan compared to the end of the preceding quarter.

The NPL ratio of Chinese commercial banks was 1.96%, for a rise of 0.02 percentage points compared to the preceding quarter.

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