Heavy industry, small firms common sources of bad debt: report
Profit growth for many listed banks in the Chinese mainland slowed in 2015, partly due to rising nonperforming loans (NPLs), and experts said Monday that further deterioration may occur in 2016 as the nation's real economy weakens further.
Among listed banks that have released full-year results, Shanghai Pudong Development Bank (SPDB) said profits rose 7.6 percent year-on-year in 2015, down from 14.92 percent in 2014.
China CITIC Bank's profits were up 1.15 percent in 2015, down from 3.87 percent in 2014. And China Minsheng Bank's profits expanded 3.51 percent, down from 5.36 percent.
The NPL ratios at SPDB and China CITIC Bank were 1.56 percent and 1.43 percent in 2015, up 50 basis points (bps) and 13 bps, respectively, from 2014. At China Minsheng Bank, the NPL ratio was 1.63 percent, up 43 bps.
China's onshore liabilities surged 14.8 percent to 1,790 trillion yuan ($272 trillion) as of December 31, 2015, the China Banking Regulatory Commission said on Monday.
According to a report released jointly on Sunday by the China Banking Association and PricewaterhouseCoopers (PwC), the biggest NPL risks in 2015 came from industries with excess capacity.
Zhong Dajun, director of the Beijing Dajun Institute for Economic Observation, told the Global Times Monday that those industries probably included the steel, cement, and real estate sector.
The joint report said that in 2015, micro-sized and small businesses in China experienced severe operating pressure, rising costs and financing difficulties. Banks that lent to those businesses could easily have problems with bad debt.
Ni Shoubin, dean of the School of Law at Shanghai University of International Business and Economics, told the Global Times Monday that NPLs are likely to worsen in 2016, given the gloomy economic outlook.
He noted that the development of non-traditional banking institutions, such as Internet finance firms, had made it difficult for banks to make profits.
The joint report was compiled based on interviews with about 1,300 senior executives from 116 domestic banks. It said 40 percent of those bankers expected their banks' NPL ratios to rise to between 1 percent to 3 percent in the next three years.
Zhong warned that the problem might eventually lead to bank runs, especially at private banks.
Ni said that banks can take some steps to avoid NPLs, such as increasing their asset liquidity levels and conducting tougher scrutiny of borrowers. Additionally, he said, government steps to improve market liquidity will ease the pressure of NPLs.
China's central bank pumped 400 billion yuan into the banking system on January 21, the Xinhua News Agency reported the same day.
