Chinese banks' NPL figures 'highly understated'

NPL ratios could jump to as much as 6%.

According to BMI Research, the lack of transparency of operations at the Chinese big four banks suggests that reported values on their balance sheets are often misleading, and it is their assertion that the headline NPL figure is highly understated given the similarity of NPL numbers reported in the big four banks.

Here's more from BMI Research:

The PBoC introduced a five-category loan classification system in 2002, which is in principle consistent with international standards, but it is likely that different banks adopt varying standards in differentiating the status of their loans.

Indeed, some Chinese banks are extending the amount of time that a loan can be overdue before they classify it as bad, suggesting that the actual number of problematic loans on their books should be much higher.

For example, the special mention category refers to debts that could potentially turn sour, and if we were to be more stringent and classify them as NPLs, our estimates show that the NPL ratios in H115 for ICBC, CCB, BOC and ABC will jump to 5.0%, 4.2%, 3.7%, and 6.0%, respectively (versus 1.4% for the first three banks and 1.8% for ABC).