Bad loans continue to haunt mainland lenders despite better-than-expected showing in first quarter

Bad loan ratio remained unchanged at 1.74pc at the end of March, down from a recent high of 1.76pc in the third quarter of last year

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Bank of Communications expects the NPL ratio to grow to 1.8 per cent by the end of this year, or even 1.9 per cent if economic growth falls short of expectation. Photo: Reuters

Published: 1:15pm, 12 May 2017Updated: 10:35pm, 12 May 2017

Non performing bank loans (NPL) could continue to haunt lenders in mainland China as they remain at worrying levels , and the trend will continue to haunt the sector this year despite a better-than-expected showing in the first quarter, analysts said.

“Looking ahead, we expect the bad loan ratio to rebound slightly, but bad loans will keep mounting,” said Zhao Yarui, a senior researcher at Bank of Communications, quoting factors including slower economic growth and limited space for banks to increase write-offs due to pressure to meet NPL provision coverage requirements.

Technically, a NPL is borrowed money upon which the debtor has not made his scheduled payments for at least 90 days.

The bad loan ratio at mainland commercial banks remained unchanged at 1.74 per cent at the end of March, compared with the previous quarter, according to fresh data from the China Banking Regulatory Commission (CBRC), down from a recent high of 1.76 per cent in the third quarter of last year.

Yang Yue, a banking analyst at China Zheshang Bank, cautioned it’s still too early to conclude any turnaround is happening in worsening banking assets, despite latest data showing signs of periodical stabilising. Photo: Reuters

Bank of Communications expects the NPL ratio to grow to 1.8 per cent by the end of this year, or even 1.9 per cent if economic growth falls short of expectation, quoting major sources of bad loans such as smaller business and sectors hit hard by the nation’s de-stocking measures including steel, cement, construction materials.

“The surprisingly good first quarter non-performing loan ratio is mainly thanks to faster-than-expected total credit growth that helped dilute the ratio, rather than improve asset quality,” said Zhao. “In value terms, we actually see stronger growth of bad loans.”