China’s bad loans likely underestimated, says central bank adviser

China’s bad loan problems may have been underestimated as the economy continues to slow down, Huang Yiping, an adviser to the People’s Bank of China, China’s central bank said on Friday.

“Official figures may have underestimated China’s bad loan problems,” he said after an event hosted by the American Chamber of Commerce in Hong Kong.

By the end of June, China’s non-performing loans amounted to 1.4 trillion yuan, taking the country’s NPL ratio to 1.75 per cent, according to the latest figures released by the China Banking Regulatory Commission (CBRC), the banking industry regulator.

“Some people doubt the NPL figures from commercial banks, which are the source for government statistics, are smaller than the actual number,” said Huang. In addition, “the NPL ratio doesn’t include broader problem loans”, he said.

Special-mention loans, or loans that banks have extended to borrowers are still capable of repaying debt and interest on time but are highly likely to encounter difficulties to do so, are not included in NPLs but they are likely to become non-performing loans.

“If these broader problem loans are included, the total amount will be much higher,” said Huang.