70% of Chinese banks expect bad loans to dip 2%

Most bankers are confident in results in the next three years.

Over 70% of 1,920 Chinese bankers from the Chinese Bankers’ Survey by China Banking Association and PwC forecast that non-performing loan ratios will fall steadily to less than 2% over the next three years.

Most respondents are positive about the banking sector’s prospects over the next three years, albeit also accepting that breakneck growth will have to give way to more sustained reform and restructuring. The proportion of bankers who expect revenue and post-tax profit growth in the 5-10% range is higher than in 2016.

Financial Services partner for PwC Hong Kong Monica Ng says, “The challenge of non-performing loans has been uppermost in the minds of China’s bankers in recent years. An increasing NPL balance was cited as the main pressure on their institution by 87% of respondents in 2016. But this was supplanted in the 2017 survey by concerns about a slowdown in the rate of profit growth.”

The survey argues that this is partly a recognition by bankers of the ‘new normal’ of more moderate GDP growth in the coming years. But it also reflects ongoing success in the gradual absorption of NPLs – particularly by the largest banks.