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Bad loans rise nationally as lenders take greater risks
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CHINA’S bad loans continued to rise during the third quarter as the economic slowdown caused deterioration in asset quality and thinner loan profit margins, leading lenders to expose a greater proportion of their balance sheets to small companies with a higher default risk.
Lenders on China’s mainland saw outstanding non-performing loans rise by 24 billion yuan (US$3.9 billion) from the end of June to 563.6 billion yuan by the end of September. The bad loan ratio edged up from 0.96 percent to 0.97 percent during the same period, said the China Banking Regulatory Commission today.
Rural commercial lenders had the worst asset quality among the peers, posting an average non-performing loan ratio of 1.62 percent. The ratio at foreign banks improved 3 basis points to 0.57 percent, which remained the best among all mainland lenders.
“Bad loan ratios climbed during the third quarter despite the fact that small and medium banks had more write-offs,” Beijing Gao Hua Securities Co said in the latest report.
Other analysts said the banks tend to retreat from industries with overcapacity and stop providing refinancing or payment extensions for those companies, causing a further increase in bad loans. Additionally, credit expansion to small and micro enterprises in order to earn higher profits also results in higher credit risks for the lenders.
Net interest margins improved at the top four lenders while narrowing at most smaller lenders, according to Gao Hua.
Net profit of the whole banking sector was 368.5 billion yuan in the third quarter. It was 1.1 trillion yuan for the first nine months, up 14.3 percent from last year, said the CBRC.
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