Chinese Banks’ Loan Risks Are Under Control, CBIRC Official Says

What’s New: Small and medium-sized financial institutions have maintained stable operation and made gradual improvements in their business conditions, with loan risks under control, said Xiao Yuanqi, chief risk officer of the China Banking and Insurance Regulatory Commission (CBIRC).

Xiao made the comment Thursday at a regular press briefing of the commission, aiming to defuse rising concerns over bad-loan risks facing the country’s lenders. At the same time, Xiao acknowledged that the overall bad-loan ratio of China’s banking industry is rising this year, with some institutions failing to accurately disclose risk exposure.

By the end of June, Chinese banks held 3.6 trillion yuan ($515 billion) of non-performing loans, up 400.4 billion yuan, or 12.5%, from the beginning of the year. The average bad-loan ratio rose 0.08 of a percentage point to 2.1%. Meanwhile, loss-provision coverage dropped 4 percentage points to 178.1%, CBIRC data showed.

Background: Market concerns over Chinese banks’ loan-risk exposure amid monetary policy easing this year rose following a CBIRC statement published earlier this week warning of a “significant rebound of bad loans.” Some hidden risks have yet to be fully exposed, the commission said while explaining the pandemic’s impact on the banking sector.

The CBIRC said Thursday it will push forward a program approved by the State Council July 1 to allow local governments to sell special-purpose bonds to recapitalize some small and midsize banks. The initiative will be launched in 18 regions, commission officials said.

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Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)