Non-performing Loan Ratios Decline in Most Chinese Provinces Last Year Despite COVID-19

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A new report indicates that dud debt ratios in most Chinese provinces fell in 2020 despite the adverse impacts of the COVID-19 pandemic.

A survey of regional banks by Diyi Caijing found that out of 20 Chinese provinces only three saw a rise in the NPL ratios of their local banking sectors in 2020.

These included Tianjin – with an increase from 2.29% in 2019 to 3.04% in 2020; Chongqing, which saw a rise form 1.12% to 1.48%, and Zhejiang, which saw an increase from 0.91% to 0.98%.

In most Chinese provinces for which data is available the local NPL ratio was under 2% in 2020, including Beijing (0.55%), Hebei (1.97%), Shanxi (1.96%), Shanghai (0.79%), Jiangsu (0.92%), Jiangxi (1.25%), Hunan (1.35%), Guangdong (1.02%), Guangxi (1.78%), Sichuan (1.69%), Guizhou (1.32%) and Xinjiang (1.30%).

Gansu province had the highest NPL ratio at 6.74%, followed by Jilin (3.09%), Tianjin (3.04%), Heilongjiang (2.70%), Shandong (2.23%), and Hainan (2.11%).

The report also found that multiple small and medium-sized banks in provinces including Hunan and Guangdong had seen their NPL ratios exceed 7% since the start of 2021.

Industry insiders say that repayment deferral policies imposed by the Chinese government to help deal with the impacts of COVID-19 may have contributed to the surge in NPL ratios at some regional banks.

“The increase in NPL’s is at least partially due to the appearance of unsound assets amongst those subject to principal and interest payment deferrals,” said one source.

“Additionally, during the transition period for new wealth management regulations, the transfer of off-balance sheet assets onto balance sheets could produce some unsound debt.

“Overall, the banking sector is quite stable, but some small and medium-sized banks lack disposal mechanisms, and face greater pressure than joint-stock and big state-owned banks.”

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