China’s top banks have to deal with 3.4 trillion yuan ($ 489.5 billion) in bad debt by 2020, China’s top banking official said on Thursday. This is a big risk for the banking system of the world’s second largest economy.
This number marks a huge increase from CNY 2.3 trillion in 2019, and the value of bad loans is likely to be even higher in 2021.
Guo Shuqing, chairman of the China Insurance and Banking Regulatory Commission - said in an interview with Xinhua that an increase in NPLs - about to default - would put pressure on great force on the country, banks, especially small banks in the region.
"As more loans are carried over [2020], some problems will emerge next year," Guo was quoted by Xinhua and added that the rebound in bad debts was "inevitable." because of the Covid-19 shock, a lot of companies were adversely affected.
Guo’s warning comes at a time when many of the country’s small banks are facing a time of recalculation after years of undisciplined balance sheet expansion, as well as time cases. fraud and corruption.
Meanwhile, Guo said, Chinese banks have improved their lending structure - with more loans going towards manufacturing, infrastructure, technology and small businesses.
Guo added that Chinese banks are now being asked to increase support for small businesses. In addition, he said he would encourage banks to invest more in corporate bonds.
According to official statistics from Guo’s agency, the bad debt ratio for Chinese commercial banks rose 0.03 percentage points in the second quarter to 1.94% at the end of June.
Potential bad debts, if exposed, can easily wipe out bank profits and undermine capital bases. In the first half of this year, Chinese banks’ aggregate profits fell for the first time in more than a decade - 9.4 percent to 1 trillion yuan in the first half, government data show.
For example, Baoshang Bank, based in the Baotou city of Inner Mongolia, has filed for bankruptcy - marking the failure of the first bank in China in more than 20 years.
Chinese authorities stepped in to take over Baoshang Bank and Hengfeng Bank last year.
At least four bank executions have been reported in China this year - all at small lenders in the region. The bad debt ratio at rural commercial banks is 4.22% according to official Chinese statistics.
Raymond Yeung, chief economist of Dai China at ANZ Bank, said small banks, often owned by the local government, are particularly risky when paying for government-prioritized projects. local and state-owned enterprises.
“Larger scale generally helps diversify risks… But it’s more important to improve asset quality through corporate restructuring and bad asset disposal,” Yeung said.
In an interview with Xinhua, Guo pledged to supplement the registered capital of small banks, expand the scope of capital to handle risks and improve corporate governance.
"The reform of small and medium-sized banks is the key to improving the health and stability of the overall financial system," he added.
