CBIRC Warns of Worsening Asset Quality, Rising Bad Loans

Source: Regulation Asia Editors, Regulation Asia 2020-07-14

NPLs will appear in the next period and rise, the CBIRC said, citing deteriorating asset quality, accumulated risks and weaker profitability at small and medium-sized banks.

The CBIRC (China Banking and Insurance Regulatory Commission) has warned domestic banks of a large rise in bad loans, as small and medium-sized financial institutions facing deteriorating asset quality and accumulated risks.

“The pressure of rising non-performing assets has increased … and it is expected that non-performing loans will appear in the next period and rise,” the CBIRC said in a statement. “Some small and medium-sized financial institutions have more serious problems.”

With minimum provisions against bad loans, profits in the banking sector would fall by over CNY 350 billion (USD 50 billion), the CBIRC said.

Outstanding NPLs (non-performing loans) in the banking sector as at end-June were recorded at CNY 3.6 trillion, with the NPL ratio rising to 2.10%, about 0.8 percentage points up from the start of the year.

To prepare for the rise in NPLs, the CBIRC said a strict distinction must be made between borrowers that have been impacted by Covid-19 and those that present their own business risks in loan classification, where the latter must be classified as poor.

The CBIRC also urges continued efforts to dispose of bad loans and broaden disposal channels, including through write-offs and debt-to-equity swaps. The regulator also reiterated its support for banks to raise new funding through the issuance of new shares, bonds and other capital instruments.

Earlier this month, the State Council granted formal approval to allow local governments to use special purpose bond issuances to help recapitalise certain small and midsize banks. The CBIRC said this policy will be implemented “as soon as possible”.

CBIRC

CBIRC Warns of Worsening Asset Quality, Rising Bad Loans

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