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June 17, 2020

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Banks’ asset quality weakens

Chinese banks’ asset quality, capitalization and profitability weakened in the first quarter of 2020 when disruptions from the coronavirus outbreak peaked, according to a recent industry report.

Asset growth of domestic commercial lenders rebounded to 10.7 percent at the end of March from 8.7 percent a year ago, driven by a pickup of growth in non-loan assets.

Moody’s Investors Service expects banks’ supply of non-loan shadow credit to increase in the remainder of 2020 because of slower implementation of asset management regulations in view of disruptions caused by COVID-19.

Liquidity within the banking system remained adequate. Commercial banks’ average loan-to-deposit ratio fell to 74.9 percent at the end of March from a multi-year high of 75.4 a quarter ago, thanks to central banks’ eased monetary policies to offset disruptions caused by the outbreak.

Banks, however, saw their asset quality weakening during the January-to-March period under the impact of the health crisis. The system’s non-performing loan ratio rose to 1.91 percent at the end of March, from 1.86 percent at the end of 2019, with regional banks showing a more pronounced rise in delinquency than nationally franchised banks.

The ratings agency anticipates considerable lag time before NPL metrics fully capture the increase in loan delinquency pressure.




 

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