Bad Loans Rise for China Banks as Virus Hits Businesses and Consumers
China’s banking sector is seeing a rise in nonperforming loans as the Covid-19 pandemic hurts businesses and public consumption. But the top industry regulator said risks are under control.
Banking institutions sat on 3.3 trillion yuan ($471 billion) of nonperforming loans as of the end of February, or 2.08% of total loans outstanding. The bad loan ratio was 0.05 of a percentage point higher than in the previous month.
In addition, specially mentioned loans — those potentially at risk of not performing — totaled 5.8 trillion yuan by the end of the month. That category’s ratio to total loans rose 0.17 of a percentage point from the previous month, according to the China Banking and Insurance Regulatory Commission (CBIRC) Tuesday.
China's bad loans have steadily climbed amid the outbreak and will continue to rise in coming months, said Xiao Yuanqi, the chief risk officer of the CBIRC, at a briefing.
Xiao said the country’s banking sector is capable of digesting the rising bad loans because of abundant capital reserves as well as sound profitability. The sector has more than 6 trillion yuan in reserves and provisions along with more than 2 trillion yuan of net profit annually, enough to cushion loan losses in the worst scenario, Xiao said.
Meanwhile, businesses have picked up the pace of recovery as the domestic outbreak wanes, with support from a series of recent policies to ease their liquidity crunch, according to Xiao.
Consumer loans, such as credit card borrowing and home equity loans, were the main driving force of the rise in bad loans in February, Xiao said. Growth of consumer loans also slowed since the Covid-19 outbreak, reflecting a slowdown of consumption.
February growth of personal borrowing outside mortgages and loans for business purposes declined 564.4 billion yuan from the previous month, with new credit card borrowing dropping 404 billion yuan, CBIRC data showed.
The Covid-19 pandemic dampened personal consumption with shop closures and logistics disruptions. It also forced some people to cut spending due to loss of income sources, Xiao said.
China’s banking sector had total assets of 285.4 trillion yuan at the end of February, 1.1 trillion yuan more than a month earlier. Outstanding loans stood at 160.7 trillion yuan, up 822.9 billion yuan from the previous months and 109.7 billion yuan from a year ago, according to the CBIRC.
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