Skip to content

China’s Banking Industry: Non-performing Debt to Surge as Preferential Policies Expire

The profitability of China’s banking industry has severely deteriorated as a result of the ongoing epidemic. Each and every of the five state banks has recorded double-digit negative first-half net profit growth. According to Reuters, increasing the provisions for bad debts and more speedily disposing of them are the banks’ main measures for dealing with the slowing economy and the impact of the virus.

Liao Lin, vice president and chief risk officer of the Industrial and Commercial Bank of China (ICBC), talked about the mounting pressure of controlling the quality of the collateral for deferred loan repayments in the second half. Jin Yanmin, the chief risk officer of China Construction Bank (CCB), expressed that the expiration of relevant preferential policies that help companies to recover may affect the appraised value of the customers’ assets. In the first half of next year, more non-performing debts may surface. Zhang Qingsong, President of the Agricultural Bank of China (ABC), mentioned two sectors with greater uncertainty in the mortgage assets: one is the businesses that the epidemic directly impacts, such as catering, accommodation, tourism, and entertainment; the other is those with a high degree of external dependence and high risks due to external uncertainty, such as export-oriented low-end manufacturing.

The interim results of the five major banks showed that their non-performing loan ratios are slightly on the rise, ending a three-year downward trend. Among them, the Bank of Communications (BC) shows the largest climb at 21BP (basis point), followed by ICBC and CCB, both at 7BP. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), the state regulator of the banking industry, recently stated that the banking industry is expected to dispose of 3.4 trillion yuan (US$ 500 billion) of overdue loans this year, compared to 2.3 trillion yuan (US$ 340 billion) last year.

Source: Central News Agency, September 1, 2020