Write-offs by Chinese banks keep mainland NPL ratios in check
During third quarter the 10 Hong Kong-listed mainland banks wrote off 47.3b yuan in non performing loans, up 110pc from first quarter
The mainland's bad-debt malady could be remedied without an explosion in non-performing loans on the books if banks continue to digest deteriorating assets at the pace they hit in the third quarter, say analysts.
Banks tend to write off more loans as the year progresses but third-quarter write-offs at these banks still jumped 77 per cent on the same period in 2013, showing an increased drive by banks and regulators to keep NPL ratios low.
"They are using excess provisions to smooth out the credit cycle," said Judy Zhang, a banks analyst at BNP Paribas, noting that write-offs in the third quarter, if annualised, would represent about 0.41 per cent of total outstanding bank loans in China. "Lots of investors are waiting for the kitchen-sinking moment. It's already happening but in a Chinese way."
The Chinese way to have a debt crisis might be to not have one at all as far as the books are concerned.
In the wave of investment that followed China's 4 trillion yuan stimulus package announced in 2008, the China Banking Regulatory Commission asked banks to begin building provisions. At the same time, the CBRC and the Ministry of Finance discouraged write-offs at the banks.
From the second quarter of this year, the regulators changed their tune on how the banks treat their bad debt. In fact, both regulators are now pressuring banks to use the excess provision to tamp down what could have been an alarming rate of deterioration in asset quality.