Chart of the Day: Chinese Banks’ Bad Debt Level Reaches 11-Year High

The nonperforming loan (NPL) ratio of China’s commercial banks climbed to 1.91% at the end of March, up 0.05 percentage points from the end of December and marking the highest level since March 2009, official data (link in Chinese) showed Tuesday.

At the end of March, NPLs of commercial banks amounted to about 2.6 trillion yuan ($367.7 billion), up 198.6 billion yuan from the end of December, according to data from the China Banking and Insurance Regulatory Commission (CBIRC).

Total assets of financial institutions in the banking sector rose 9.5% year-on-year to 302.4 trillion yuan at the end of the first quarter, marking the first time that their assets had expanded to over 300 trillion yuan, according to the CBIRC data.

The full impact from the coronavirus outbreak might be lagging and might not immediately be reflected in the first-quarter data, market participants said.

Wang Jian, an analyst at Guosen Securities Co. Ltd., said that the economic shutdown caused by the virus outbreak in February and March would test the liquidity of bank clients rather than immediately show up as an increase in NPLs. Most clients would be able to survive by relying on either existing capital or financing tools, so the epidemic would not directly have a large impact on banks’ NPLs in the first quarter, he said.

Xiao Yuanqi, chief risk officer of the CBIRC, said at an April briefing (link in Chinese) that the NPL ratio might increase in the future but it would not be a big rise.

The epidemic has dealt a blow to some banks’ credit card businesses. Bank of Communications Co. Ltd., for instance, saw its NPL ratio rising 0.12 percentage points to 1.59% in the first quarter, in part due to its credit card business not fully functioning amid rising defaults.

Xu Han, a business director of the bank, said on a recent earnings call that the bank’s largest operation center for credit card risk monitoring and collection is located in Wuhan and over 45% of its debt collection force wasn’t in place in the first quarter, and that some credit card holders failed to repay their bills as their income shrank amid the epidemic.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)

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