Caixin
Apr 01, 2019 08:02 PM
FINANCE

Agricultural Bank Sees Above-Average Bad Loan Ratio for Private Firms

A branch of the Agricultural Bank of China in Shanghai, pictured on July 24. Photo: VCG
A branch of the Agricultural Bank of China in Shanghai, pictured on July 24. Photo: VCG

* One of China’s major state-owned commercial lenders reported the ratio of bad loans to private firms was higher than the ratio for its broader portfolio of corporate loans

* This highlights the challenge that these banks are dealing with in answering the government’s call to provide greater support to the credit-starved private sector

(Beijing) — Agricultural Bank of China Ltd., one of the country’s “Big Five” state-owned commercial lenders, had a much higher bad loan ratio last year for its loans to privately owned companies than it did for its broader portfolio of corporate loans, though it promised to continue lending to the credit-starved firms.

At the end of last year, Agricultural Bank’s nonperforming loan (NPL) ratio for loans to private companies reached 6.37% — which was 4 percentage points higher than its ratio for the entire corporate sector, Vice President Wang Wei said Friday at a press conference for the bank’s annual report. The ratio was also much higher than the lender’s overall NPL ratio of 1.59%.

The higher NPL ratio for the bank’s loans to private companies illustrates the complications that banks face meeting the central government’s demand to lend more to the private sector, where bank loans have often been hard to come by in China.

Last year, Beijing began urging commercial banks, particularly the biggest state-owned lenders, which have long favored lending to state-owned enterprises and real estate developers, to increase lending to the private sector and small businesses as economic growth has slowed.

That call has sparked concerns that the quality of banks’ assets could deteriorate going forward. The average NPL ratio for loans to small and micro companies ranges from 2% to 3%, higher than that for corporations in general, according to a February report by China International Capital Corp.

At the press conference, Tian Jimin, general manager of Agricultural Bank’s risk management department, said the bank has the ability to continue bringing down the its absolute amount of NPLs, as well as its NPL ratio.

Agricultural Bank’s outstanding loans to private companies stood at 1.67 trillion yuan ($250 billion) at the end of last year, accounting for more than a quarter of its outstanding corporate loans, Wang said.

At the end of last year, more than 67,000 private sector companies had outstanding loans from Agricultural Bank on their books. That figure was up 60% from a year earlier, according to the bank’s annual report.

At the end of 2018, Chinese banks’ outstanding loans to private sector companies reached 42.9 trillion yuan, accounting for 47.4% of their entire corporate loans, according to a report (link in Chinese) by the People’s Bank of China.

The “Big Five” state-owned banks, including Agricultural Bank of China, should increase the amount of outstanding loans to small and micro companies with credit lines of less than 10 million yuan by more than 30% this year, according to a notice (link in Chinese) issued by the China Banking and Insurance Regulatory Commission (CBIRC) in March. At the end of last year, outstanding loans to these companies reached 9.4 trillion yuan, up 21.8% year-on-year, CBIRC data showed.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)

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