Chinese commercial banks bad loan ratio hits 10-year high in 2018

Total non-performing loans hit $296.52b (CNY2t) in December.

Reuters reports that the non-performing loan (NPL) ratio of Chinese commercial banks hit a 10-year high of 1.89% by end-2018 as the country’s economic slowdown hit companies’ ability to pay back their debt, according to Liu Zhiqing, deputy head of the statistics department of the China Banking and Insurance Regulatory Commission (CBIRC).

The total bad loans held by commercial banks held steady at $296.52b (CNY2t) in December. The sector’s outstanding bad loans jumped from $26.56b (CNY182.9b in Q1 ) to $284.64b (CNY1.96t) in Q2 to represent the largest quarterly jump in over ten years as a result of the regulator’s decision to reclassify loans that are overdue for more than 90 days as non-performing.

Also read: Chinese commercial banks' bad loan ratio to hold below 1.9%

Special mention loans or lending that’s potentially at risk of slipping into non-performing status rose to $503.19b (CNY3.4t) by December, representing around 3.16% of total commercial loan value.

Commercial banks along with smaller players like rural banks are bearing the brunt of China’s ballooning bad loan problem as the NPL ratio of national and megabanks have been trending lower in the past three years even as asset quality deteriorates for smaller players.

Also read: More bailouts loom as staggering bad loans batter Chinese rural banks

To handle mountains of bad loans, Chinese banks doubled down on their portfolio clean-up to resolve almost $295.99b (CNY2t) in soured assets, compared with $207.2b (CNY1.4t) in 2017, CBIRC spokesman and Chief Risk Officer Xiao Yuanqi said at the press conference.

Banks have also started employing tools like asset-backed securities and debt-for-equity swaps and increased their loan loss reserves by 676.2 billion yuan over the prior year to 3.7 trillion yuan to shore up their ability to fend off risks, the officials said.

Here’s more from Reuters:

Photo from Raysonho @ Open Grid Scheduler / Grid Engine - Own work, CC0,