Across The Border | Chinese banks are set to take on more bad loans as the economy slows
Bad loan ratios at banks could more than treble in the next couple of years, analysts said
The percentage of bad loans as a total held by China’s banks will more than treble in the next two years because growth in the world’s second-largest economy is slowing, BOC International analysts Lin Yuan and Polar Zhang said in a report last week.
The industry’s non-performing loan (NPL) ratio could climb to 6.6 per cent by 2018, they said. That compares with 1.67 per cent at the end of 2015. The BOCI analysts said NPLs may total 9.27 trillion yuan (HK$11.10 trillion) by 2018. That would be up from 1.27 trillion yuan last year, itself a 10-year high, according to China Banking Regulatory Commission (CBRC) data.
“The largest concern about Chinese banks is asset quality, at least over the next two years,” Lin and Zhang said.
The largest concern about Chinese banks is asset quality, at least over the next two years
An NPL is borrowed money where the debtor has not repaid on time for at least 90 days. The borrower has defaulted or is close to being in default.
China’s big five banks — Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications — announced little-changed net profit growth and soaring bad debts. They lowered dividends for 2015.
China’s economy grew at a 25-year low of 6.9 per cent last year. The government’s 13th five-year plan anticipates average annual growth of 6.5 per cent.
There is a “very high possibility” that banks’ overdue and special-mention loans would turn into NPLs under the weak economic environment, the analysts said.
The overdue loans of all listed Chinese banks, both in the A-share and Hong Kong markets, were 80 per cent higher than the NPL balance for the first half of 2015, the BOC International report shows.