Banks have enough to cover bad loans, watchdog chief says
Commercial banks on the mainland have made sufficient provision for non-performing loans (NPLs) despite soaring risks on bad debts incurred in a spending spree, the head of the banking watchdog says.
Liu Mingkang, chairman of the China Banking Regulatory Commission, was confident commercial banks would meet its target of 130 per cent provision coverage ratio on NPLs by the end of this year based on performance in the first three months of the year.
Analysts were increasingly concerned about skyrocketing bad debts as Beijing's 4 trillion yuan (HK$4.5 trillion) economic stimulus package prompted banks to lend 1.9 trillion yuan last month, taking the first quarter's new loans to 4.58 trillion yuan. The first quarter total represented 20 per cent more than the full-year total in 2007.
The total amount of new loans almost met the target Premier Wen Jiabao set in his work plan for this year - a minimum of 5 trillion yuan by the end of the year.
'Many are concerned about higher risks on NPLs as a result of the explosive growth in lending,' Mr Liu said at the Boao forum yesterday. 'The sharp loan growth [in the first three months of this year] has inevitably raised risks on NPLs, but the risks are manageable.
'If you look at the first quarter data and the amount of reserves banks have set aside when lending, I can responsibly say that the NPL level will decline this year.'
He said commercial banks' provision coverage rose 7.5 percentage points - to 123.9 per cent on March 31 - from the start of this year, which was just about 6 percentage points off its full-year target of 130 per cent.
He pointed out that NPLs dropped 10.77 billion yuan, or 1.92 per cent, to 549.54 billion yuan in the first quarter, leaving the ratio of NPLs to total loans 38 basis points lower at 2.04 per cent.
Mr Liu said the amount of reserves that banks set aside when lending stood at 970 billion yuan, which gave 'some comfort' to analysts' concerns about bad debts. 'The world's financial crisis has a limited impact on the mainland's banking sector, and Chinese commercial banks were the most profitable globally last year,' he said.
Mainland banks are exposed to bad debt problems as Beijing relaxed monetary policies to boost liquidity, especially to help hundreds of thousands of small and medium-sized enterprises stay afloat. On the other hand, the stimulus package fuels demand for new loans.
Mr Liu conceded that the survival of these enterprises, a key sector that provided jobs, was crucial to the economy. He said commercial banks were efficient in managing lending risks to smaller firms.