Ratio still within controllable range: experts
The bad loan situation for domestic banks continued to worsen in the third quarter, media reports said Tuesday, but the situation is not likely to pose a serious risk, experts said.
Chinese banks' non-performing loan (NPL) ratio, the proportion of total loans that are either in or close to default, exceeded 2 percent by the end of September, up 0.35 percentage points compared with the beginning of this year, Beijing-based financial news portal caixin.com reported on Tuesday.
NPLs in China's overall banking sector approached 2 trillion yuan ($313 million) by the end of September, up from 1.5 trillion yuan at the start of 2015, according to the report.
The China Banking Regulatory Commission (CBRC) said on November 12 that domestic commercial banks' NPL ratio had reached about 1.59 percent by the end of September.
"Two percent is still within the controllable range," Yin Zhongli, a research fellow at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, told the Global Times on Tuesday.
"More troubling is the increasing growth of bad loans at domestic banks," he noted.
The Securities Daily reported on November 5 that China's NPL ratio has risen for 15 consecutive quarters.
Xi Junyang, a professor with the Department of Finance at the Shanghai University of Finance and Economics, said that the current NPL ratio is "relatively serious," as it is the highest level since the banking reforms in the 1990s.
But he also noted that the current NPL ratio won't trigger any serious crisis in the banking sector, because domestic banks have made substantial profits in recent years, which can be used to offset the influence of bad loans.
According to a report from Guangdong-based 21st Century Business Herald on November 3, of the 16 listed banks in China, only Agricultural Bank of China had an NPL ratio of above 2 percent by the end of the third quarter.
But the caixin.com report pointed out that the situation for local banks was more severe, as banks in several provinces such as East China's Zhejiang Province and Northeast China's Heilongjiang Province saw their NPL ratio exceed 2 percent as of June.
According to Xi, the most important reason for the rise in bad loans is the ongoing difficulties in the domestic manufacturing industry.
"A lot of bank loans have gone to manufacturing enterprises. As many of those companies are facing business difficulties and have even shut down, it's hard for banks to recall their loans," Xi told the Global Times on Tuesday.
Another factor behind the rising NPL ratio is the development of non-banking financing channels in China such as private financial institutions.
"This has diverted business away from commercial banks and caused their total loans to decrease," Xi said.
The government has launched a series of measures to boost bank loans in recent months, such as cutting benchmark interest rates and the reserve requirement ratio, the amount of cash that banks must hold in reserve.
However, considering the current situation, the banks are likely to remain "very cautious" about granting loans, Xi said.
According to statistics released on October 15 by the People's Bank of China (PBC), the central bank, new loans to the real economy reached 8.99 trillion yuan in the first three quarters of 2015, compared with 7.64 trillion yuan in the same period last year.
Xi noted that the NPL ratio is likely to increase in the future, although the speed of its rise is likely to slow down.
"Performance in the banking sector is generally in line with the overall economic situation. Right now China's economy is facing downward pressure, but in the next few years it will become more stable," he noted.
