Be honest about bad loans, China banks told

Non-compliance with NPL settlement plan will see lenders being ‘resolutely dealt with’

Be honest about bad loans, China banks told
Be good: Banks warned about glossing over bad loans.

(ATF) Chinese authorities have said they will accelerate the settlement of non-performing loans (NPLs) in the second-half of the year.

The China Banking and Insurance Regulatory Commission (CBIRC) said it would urge banks to make a bona fide classification of their assets, truthfully exposing their NPLs. Any actions aimed at glossing over bad loans and manipulating their balance sheets will be “resolutely dealt with”, it added.

The CBIRC said it would guide banks to step up the settlement of NPLs and ask them to set aside sufficient provisions.

Shen Juan, an analyst with Huatai Securities, attributed the quickened pace of bad loans settlement in the H2 to factors that including the delayed impact of the coronavirus epidemic and banks' high provision coverage ratio (PCR), which affords them enough ammunition to settle bad loans.

Chinese commercial banks' PCRs – the ratio of provisioning to gross non-performing assets, which indicates the extent of funds a bank has kept aside to cover loan losses – stood at a high of 183% by the end of the first quarter, Shen said.

She called for attention to risks in the retail sector, especially in the second and third quarters, as well as risks in companies that rely on foreign demand, such as those related to ports, computers and automobiles.

Analysts called for attention to be focused on small- and medium-sized housing companies and companies dependent on foreign demand.

Zhao Yarui, a researcher with the financial research center of the Bank of Communications said slowing sales, relatively weak management, crunches in financing and operating cash flow were problems blighting the sector.

The NPL ratio of China's banking industry came in at 2.04% at the end of the first quarter, up 0.06 percentage points compared with the beginning of the year, CBIRC data showed.