Banks' asset quality declines further in Q1

Chinese banks' asset quality continued to deteriorate in the first quarter as the economy faltered, according to the financial reports of major banks.

The outstanding soured loans of 16 listed banks totaled 424 billion yuan ($68.8 billion) at the end of March, and 14 banks saw an increase in bad loans, with newly added non-performing loans, or NPLs, reaching 22.2 billion yuan from January to March.

The financial results showed that 10 out of 16 listed banks witnessed a rise in both outstanding NPLs and NPL ratios. Among them, China Citic Bank reported the biggest jump in its bad-loan ratio, which went up by 0.14 percentage point from three months earlier.

Only two lenders reported a decline in both bad loans and NPL ratios. Agricultural Bank of China's bad loans fell by 165 million yuan from the end of 2012, taking up 1.27 percent of the total loans, while those of the Bank of Beijing dropped by 130 million yuan, accounting for 0.54 of total loans.

"The rise in non-performing loans was mainly because the economic growth seems to still lack momentum, and the less optimistic scenario has affected companies' operations, which led to more defaults," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.

He said the scale of the increase in bad loans is still mild and may decrease in the following months as the economy stabilizes.

Meanwhile, the trend for more overdue loans — an indicator of future bad loans — also continued in the first three months of the year.

Bank of Communications, one of the five largest State-owned lenders, saw its overdue loans rise 12.4 percent from the end of 2012 to 40.7 billion yuan.

The bank's overdue loans with defaults of more than 90 days increased 25 percent to nearly 5.2 billion yuan.

Slower profit growth among banks also added to concerns over the worsening asset quality.

In the first quarter, the net profit growth of China Citic Bank, Ping An Bank, Agricultural Bank of China and Bank of China all fell to below 10 percent.

"More than 80 percent of the asset quality problems are related to small and medium enterprises concentrated in the Yangtze River Delta, which was the hardest-hit region by this round of economic restructuring," Minsheng Bank said in its first-quarter results.

Minsheng's NPL ratio for the SME sector jumped by 86 basis points at the end of 2012 from six months earlier.

Last month, Standard & Poor's warned that China has to fend off rising bad loans after keeping recession at bay, amid media reports that Chinese lenders' NPL ratios increased in the first quarter to 0.99 percent.

China Business News reported in April that by the end of March, outstanding NPLs stood at 524.3 billion yuan, up 20.7 percent year-on-year, from the beginning of the year, citing figures from the China Banking Regulatory Commission.

The amount of bad loans is likely to continue rising, the newspaper quoted Shang Fulin, chairman of the CBRC, as saying.

By the end of 2012, outstanding NPLs rose 64.7 billion yuan to 492.9 billion yuan compared with three months earlier, while the NPL ratio fell 0.01 percentage points to 0.95 percent, according to CBRC data.