Chinese banks speed up half-year bad loan disposals

Their non-performing loan ratios have dropped to 1.53% in June.

The non-performing loans (NPL) held by 15 large commercial banks and joint-stock commercial banks in China dropped by 0.04 percentage points from 2017 to 1.53% as of end-June, according to accounting firm PwC, reflecting a mild improvement in the banking sector’s growing bad debt situation.

Total provisions that were written off or transferred also surged 45% YoY to $48.8b (RMB334.9b) from end-2017 to the first half of 2018, attesting to the banks’ growing control of credit risks.

Large state banks led the pack in bad loan disposals which effectively boosted their profitability. ICBC took the lead with write-offs and transfer-outs in H1 2018 with a total of $7.61b (RMB52.22b) followed by BOC at $6.72b (RMB46.12b). ABC and CCB had write-offs worth $5.77b (RMB39.57) and $3.57b (RMB24.53b) over the same period. 

The average provision ratio also rose by 16.71 percentage points to 194.02% over the same period.

However, overdue loan ratio slightly increased by one basis point to 2.01% over the same period, raising concerns about persistent uncertainty around asset quality.  “[S]ome high-risk areas have drawn the attention of regulators. These include real estate loans, local government debt and FinTech,” James Tam, banking and capital markets partner at PwC Hong Kong said in a statement.

Also read: Chinese banks face risks from surging bad loans in real estate

Rural commercial banks bear the brunt of China's bad loan problem as they have the highest NPL ratio amongst the country's lenders in Q1 at 3.26% which could prompt bailouts in the form of forced mergers or share capital injections. Joint stock banks and city commercial banks fare slightly better with NPL ratios of 1.7% and 1.53% respectively.