China’s top banking regulator sees surge of bad loans in 2021 as effects of coronavirus bite

04-Mar-2021 Intellasia | South China Morning Post | 6:54 AM Print This Post

When the Industrial and Commercial Bank of China (ICBC), the world’s largest bank by asset size, started to auction 657 million yuan (US$101.5 million) of its non-performing assets in six tranches on Monday, it drew strong interest from bad loan disposal firms.

One of the packages received 44 bids from nine asset management companies (AMCs), including domestic firms China Orient Asset Management Company, China Great Wall Asset Management and China Cinda Asset Management, according to a statement released by the China Credit Assets Registration & Exchange, which was approved in January to coordinate bad asset auctions.

A tidal wave of asset disposals is now on the horizon, as the world’s second largest economy recognises the rising number of bad assets from its years-long economic slowdown and particularly from the coronavirus pandemic shock last year.

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“The non-performing loans that need to be addressed could increase further in 2021 and the situation may last until next year,” Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission, told a media briefing in Beijing on Tuesday.

After the pandemic, it will be hard for some businesses with abnormal operations to repay [loans]

Guo Shuqing

“After the pandemic, it will be hard for some businesses with abnormal operations to repay [loans], and quite a number of them could face bankruptcy restructuring or even liquidation. So the rise of non-performing loans is inevitable.”

Chinese banks had a record high of 3.02 trillion yuan in non-performing assets in 2020, government data showed. Some 8.8 trillion yuan in bad assets have been disposed of over the past four years, equivalent to the total value of the 2005-2016 period.

Guo, who was involved in the overhaul of the state banking system in the late 1990s and led the restructuring of China Construction Bank, the nation’s second largest lender by assets, did not reveal a target for non-performing loan (NPL) disposals this year, instead saying the regulator would have to proceed cautiously.

“We have the confidence and ability to deal with the issue. While increasing our efforts [to dispose of bank assets], we must also ensure it is within the ability of the economic and banking systems,” he said.

Beijing announced in early March last year it would allow businesses to postpone the repayment of principal and interest on outstanding loans until the end of March 2021, after the pandemic hit Chinese businesses hard early last year.

Data from the central bank indicated the size of outstanding loans was about 4.7 trillion yuan at the end of September last year, involving about 2 million market entities.

“We have been closely watching the quality of such loans. Their non-performing ratio is higher than ordinary ones,” said Gu Shu, who served as ICBC president for four years before he was appointed last month to be chair of the Agricultural Bank of China, another one of the big four state-owned banks.

“As seen from the sample of the Agricultural Bank, there are certainly risks that NPLs will rebound, but they are generally under control,” Gu said at Tuesday’s briefing.

The auction pilot scheme by the China Credit Assets Registration & Exchange marked a new wholesale channel to offload the banking system’s financial burdens.

China last year established its fifth national AMC, with the other four set up in 1999 to dispose of the bad assets owned by its biggest banks ahead of their public listings. In addition, a vast majority of China’s 31 provincial-level jurisdictions have one or more local asset management companies.

The country’s non-performing loans stood at 2.7 trillion yuan by the end of last year, or 1.84 per cent of total loans. The ratio fell from 1.96 per cent a quarter earlier. Large state-owned banks, including ICBC, China Construction Bank and Agricultural Bank of China, reported a combined non-performing loan ratio of 1.52 per cent.

China had set up 20,000 debt management committees nationwide by the end of last year, many of which are led by lenders, to prevent the snowballing of bad assets.

Such committees have already swapped 1.6 trillion yuan of debt into equity, the banking regulator said.


Category: China

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