The ratio of impaired loans to total outstanding loans at the Bank of China (BOC) fell below a key 5 per cent threshold for the first time in the first six months of the year.
The bank's non-performing loan (NPL) ratio of 4.38 per cent at the end of last month leaves it well placed to meet an official asset quality target set for the end of this year.
The 0.74 percentage point fall in BOC's NPL ratio in the first six months was achieved after a net elimination of NPLs worth 9.2 billion yuan, leaving 100 billion yuan of distressed loans on its books.
The central government has demanded that BOC and Big Four peer China Construction Bank keep their NPL ratios between 3 per cent and 5 per cent, compared with a 10-year average of 2 per cent to 3 per cent reported by the world's largest 100 banks.
To help the two state-owned commercial banks clean up their balance sheets, the government gave them US$22.5 billion each in December 2003 and orchestrated the removal of hundreds of billions of yuan in bad loans from their books. The restructuring slashed BOC's NPL ratio to 5.12 per cent at the end of last year from 16.28 per cent in 2003.
David Marshall, rating agency Fitch's managing director for Asian financial institutions, applauded the continuing improvement of asset quality at BOC but warned that it might not prove sustainable.
