Three big banks see bad loan surge

Major domestic banks have experienced significant increases in nonperforming loans, their first-quarter results show.

China Construction Bank Corp had 90.81 billion yuan ($14.52 billion) in NPLs as of March 31, up 5.54 billion yuan from the end of 2013. The NPL ratio climbed 0.03 percentage point to 1.02 percent.

Bank of China Ltd had an NPL balance of 80.32 billion yuan, up 7.05 billion yuan, and its NPL ratio rose 0.02 percentage point to 0.98 percent.

Agricultural Bank of China Ltd's bad loan balance increased 4.21 billion yuan to 91.99 billion yuan, while its NPL ratio held flat at 1.22 percent.

China Minsheng Banking Corp Ltd, the nation's first privately owned lender, had an NPL balance of 14.15 billion yuan, up 749 million yuan. Its NPL ratio went up 0.02 percentage points to 0.87 percent.

"Compared with the previous two years, such a considerable increase in non-performing loans in the first quarter is unusual for the Chinese banking sector," said Ni Jun, an analyst at Shanghai-based Greenwoods Asset Management Ltd.

For example, ABC's bad loan balance was 85.68 billion yuan in the first quarter of 2013, which was a decline of 165 million yuan from the end of the previous year. The NPL ratio dropped 0.06 percentage point to 1.27 percent.

The recent economic downturn in China is driving up bad loans, Ni said.

GDP grew 7.4 percent in the first quarter, compared with 7.7 percent in the first and final quarters of 2013.

China's GDP growth is decelerating amid weaker domestic and overseas demand as well as tight credit, wrote Tang Jianwei, a senior economist at the Bank of Communications Co Ltd, in a research report published earlier this month.

Slower credit expansion contributed to the increase of NPLs, said Ni. "The banking regulators have tightened their grip on shadow banking. As the banks have grown cautious in lending, it's gotten tougher for many companies to get loans," Ni said.

He noted that the regulatory policies on shadow banking will benefit Chinese companies in the long run, especially those in certain sectors including iron and steel, nonferrous metals, coal and shipbuilding. "Raising funds from the shadow banking system is like taking drugs. Our companies will get better if they can endure the pain of stopping," he said.

A recent Deutsche Bank AG report said Chinese banks have the means to deal with corporate bond and trust defaults. Deutsche Bank carried out a study of 2,400 corporate bond issuers and 13,000 trust products with a total credit balance of 237 billion yuan.

It found that listed Chinese banks held 37 percent of unliquidated debts in China's corporate bond market and provided 36 percent of the funding for the country's trust sector in 2013. That puts 88 billion yuan worth of bank assets at risk, but the banks are well covered by 819 billion yuan in provisions, said the report. "Therefore, small-scale corporate bond and trust defaults will not have a fundamental impact on China's banking sector," the report concluded.