China economy

Bad-loan risks of mainland banks manageable, says industry watchdog

Non-performing debt on the rise but industry watchdog says it is nothing to worry about

PUBLISHED : Friday, 30 November, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:00pm


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Mainland bad-loan risks are manageable although non-performing loans are on the rise, China Banking Regulatory Commission vice-chairman Cai Esheng said.

Although non-performing loans in some regions, such as Wenzhou, were rising, bad-loan risks were still under control, Cai said at a forum hosted by Caijing magazine yesterday.

In Wenzhou, the entrepreneurial hub in Zhejiang province, the non-performing loan ratio of banks rose for 13 straight months, to 3.27 per cent by the end of September, according to a report by China Business News last month.

Cai blamed it on a slowing economy. "But compared with our trillions of yuan of investments every year, the rise in non-performing loans is not such a big deal."

According to the CBRC, the non-performing loan ratio of banks was 0.95 per cent in the third quarter, a figure that has been dismissed by analysts, who do not find it credible.

"I don't know whether it is 1 per cent or 2 per cent, but even if it is 2 per cent, it is still below the international level," Cai said, adding that what was important was how the banks manage their bad loans.

Speaking at the same forum, Liang Yutang, a vice-chairman of China Minsheng Banking Corp, said commercial banks were conservative when it came to risk management, with provision coverage ratio - the amount of provisions to gross non-performing assets - standing at more than 250 per cent. The banks thus did not need to hide bad-loan risks on their books, he said.

"I believe the [non-performing loan ratio] figure is true," China Citic Bank president Zhu Xiaohuang said at the forum.

The impact of the economic slowdown would not reflect on bad loan ratios immediately but gradually, Zhu said.

He also warned of the default risks in the country's "shadow banking" sector, referring to non-bank loans such as trust loans and wealth management products.

Shadow banking could provide financial services to meet the credit demand of smaller enterprises that some traditional banks were unable to provide and the risk was inevitable, Cai said.

Regulation was important to prevent the risk from spreading to other sectors, he said.