China’s Banks See First-Half Bad Loan Ratios Climb as Hidden Risks Are Exposed

China’s Banks See First-Half Bad Loan Ratios Climb as Hidden Risks Are Exposed

Song Yikang

Date: Tue, 08/14/2018 - 16:24 / source:Yicai
China’s Banks See First-Half Bad Loan Ratios Climb as Hidden Risks Are Exposed
China’s Banks See First-Half Bad Loan Ratios Climb as Hidden Risks Are Exposed

(Yicai Global) Aug. 14 -- The non-performing loan ratio of Chinese banks rose slightly at the end of June after staying stable for five consecutive quarters as tighter regulation revealed concealed risk-taking, particularly at rural commercial banks.

The impaired loan ratio rose 0.12 percentage point to 1.86 percent, accounting for CNY1.96 trillion (USD285 billion) at the end of the second quarter, data from the Banking Regulatory Commission show. 

The main reason for the gain was that some previously hidden bad loans were gradually exposed because of stricter oversight, Zeng Gang, deputy director of the National Finance and Development Laboratory, said in an interview with Yicai Global. Some rural commercial banks had classified their loans inaccurately in the past, Zhang said, adding that after policy adjustments, the proportion of overdue debt suddenly jumped to more than 10 percent from an initial 2 or 3 percent. 

Incremental risk is still relatively stable and does not indicate a tendency to deteriorate faster, Zeng said. After a liquidity crunch in the first quarter, the recent adjustments to monetary policy should ensure that firms have enough funding, and the debt pressure related to some maturity mismatches is expected to be alleviated.

Rural commercial banks with small-scale and relatively poor risk control are a hazardous area for the increasing non-performing loans. Matured debt at these lenders is a problem brought about by management policies, a research report done by CITIC Securities Bank shows. The credit ratings of at least nine such banks have been downgraded this year, seven of them since last month, as Beijing makes efforts to squeezes risk-taking at financial institutions.

Commercial banks had lower second-quarter reserve ratio levels compared with the first three months of the year. The capital adequacy ratio for core tier-1 capital, which involves a reserve requirement ratio of capital to keep a financial institution afloat during times of crisis, fell to 10.65 percent.

Editor: Emmi Laine

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Keywords: Business Performance, Non-Performing Loans, CBIRC