Asset Quality of Chinese Banks Holds Steady in Third Quarter of 2021

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The overall quality of assets held by Chinese commercial banks has held steady in the third quarter of 2021, with analysts pointing to the advance recovery of China’s economy from COVID-19 as well as efforts by regulators to keep risk at bay.

As of the end of the third quarter the non-performing loan (NPL) balance of Chinese commercial banks stood at 2.8 trillion yuan, or an increase of 42.7 billion yuan compared to the end of the preceding quarter, according to figures released by the China Banking and Insurance Regulatory Commission (CBIRC) on 16 November.

The NPL ratio of Chinese commercial banks was 1.75% at the end of the third quarter, for a decline of 0.01 percentage points compared to the end of the preceding quarter.

CBIRC data further points to improvements to the profitability and risk tolerance of Chinese commercial banks in the third quarter of 2021.

As of the end of the third quarter the loan loss reserve balance was 5.6 trillion yuan, for an increase of 189.1 billion yuan compared to the preceding quarter.

The provisions coverage ratio was 196.99%, for an increase of 3.76 percentage points compared to the preceding quarter, while the loan provision ratio was 3.44%, for a rise of 0.05 percentage points.

Chinese banking sector financial institutions had domestic and foreign currency assets of 339.4 trillion yuan, for a year-on-year (YoY) rise of 7.7%. The net profits of commercial banks in China for the first three quarters of 2021 saw a YoY rise of 11.5%.

“Since the start of this year the NPL ratio of non-performing banks has remained low, on the one hand due to the ongoing recovery of the economy, and on the other hand because efforts by regulators to prevent and dissolve risk have been unstinting,” said Zhou Maohua (周茂华), financial markets macro-researcher with China Everbright Bank, to the Chinese central bank’s official news publication.

“Regulators have adopted forward looking measures, required commercial banks to properly categorise assets, increase provisions and the ability to dispose of non-performing assets, and make ongoing improvements to the quality of banking assets.”

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