Bad Loans and China

Posted by: : Shayne HeffernanPosted on: January 23, 2015 Bad Loans and China

The non-performing loan ratio of China’s commercial banks rose to 1.29 percent in the fourth quarter last year, a level not seen since the second quarter of 2010, official data showed on Friday.

The ratio was up from 1.16 percent at the end of September, the China Banking Regulatory Commission said. Commercial banks’ bad debt ratio stood at 1.3 percent in the second quarter of 2010.

Data released this week showed China’s economic growth slowed to a 24-year low of 7.4 percent in 2014 as a property downturn and industrial overcapacity weighed on investment and activity.

Despite the rise in the bad debt ratio, Wang Zhaoxing, vice chairman of the CBRC, said the risk in China’s banking sector is “under control” with the banks’ capital adequacy ratio and provision coverage ratio both at high levels.

By the end of November, banks’ capital adequacy ratio, which reflects a bank’s capacity to cushion potential losses with its capital, stood at 12.93 percent, up 0.75 percentage point from one year earlier. However, CBRC did not say what the figure was as of the end of December.

The non-performing loan ratio rose to 1.64 percent in the fourth quarter, up from 1.16 percent at the end of September, the China Banking Regulatory Commission said.

China’s bad debt ratio stood at 1.66 percent in the third quarter of 2009.

The rise in the bad debt ratio is the latest sign of the challenges faced by the world’s second-largest economy.

Data this week showed China’s economic growth plumbed a 24-year low in 2014 as a cooling housing market and a downturn in investment and manufacturing dragged on activity.

Separate government and corporate data have shown that companies are delaying their debt repayments as business slowed.

Yet, in a bid to shore up economic activity, Chinese authorities have been funnelling more cash into banks to spur lending.

The central bank pumped 50 billion yuan ($8.04 billion) worth of short-term loans into banks on Wednesday, its second cash injection in as many weeks to encourage lending to farmers and small businesses.

Banks’ capital adequacy ratio, a measure of the level of protection offered to depositors, stood at 12.9 percent at the end of November. The regulator did not say what the figure was as of the end of December. ($1 = 6.2176 Chinese yuan)

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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  • Karly Johnston

    Chinese profits decline yet production imput costs decline… margins should be going up. Unless the debt is such a burden they spend half revenues on repayment.

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