Chinese banks see worst to come for impaired loans, says survey

The majority of bankers in China believe the worst is yet to come in terms of deteriorating asset quality as the mainland economy faces stronger headwinds, according to an industry survey published on Friday.

About 70 per cent of the bankers said China’s bad loan situation has yet to be fully exposed despite a continuing rise in both the outstanding value and ratio of impaired loans for four straight years, the China Banking Association and PwC said in a joint statement on Friday.

The survey involved responses from about 1,800 bankers in China in the second half of 2016.

About 61 per cent of bankers said they expect the peak season for bad loans exposure to be in one to two years, while 30 per cent said they expect the timeframe to be three to five years.

Meanwhile, 47.2 per cent of bankers surveyed said the debt-to-equity swap programme, a renewed version of the approach the government used in 1999 to spin off bad debts from state-owned banks, won’t help avoid a crisis, only delay the exposure to risks.

The debt-to-equity swap, where debt held by banks in underperforming companies is swapped for stock holdings, was raised by Chinese Premier Li Keqiang in March 2016 to address China’s high levels of debt that were increasingly worrying global investors amid warnings it could trigger a banking crisis.