Banks face rising credit risks on loans to local government
By Zhang Fengming |
July 23, 2010, Friday
|
Print Edition
Print Edition
CREDIT risks are rising in China's banking system with the financing arm of local governments as one sour loan source, Standard & Poor's said yesterday.
The bad loan ratio could be a longer term concern as the level decreased in the first half on data issued by the top banking regulator yesterday.
The bad loan ratio at commercial banks in China dropped to 1.3 percent by the end of June, down 0.28 percentage points, the China Banking Regulatory Commission said.
Bad loans shrank by 42.5 billion yuan (US$6.3 billion) to 454.9 billion yuan at the end of June.
Meanwhile, banks are shoring up provision to 186 percent, up 31 percentage points from the beginning of the year against bad loan risk.
The banks' non-performing loan ratio is likely to rise as the pace of economic growth slows down, with the ratio staying below 10 percent until the end of 2012, the ratings firm said.
It expects the sector's sour ratio to stay at about 3 percent to 4 percent until the end of this year, due to current economic conditions and the relatively long tenor of loans to government vehicles.
Credit risks are rising but the industry has the strength to avoid them, backed by good operating profitability, strong liquidity and adequate capitalization, Standard & Poor's said.
"For a long time now, we've factored in relatively high credit losses for the Chinese banking sector across cycles," said Liao Qiang, a Standard & Poor's analyst. "But we also recognize the sector's structural strengths."
Lending to local government financing vehicles accounts for 18 percent to 20 percent of total loans in the banking system.
"It's highly likely that some of these loans will turn bad over the next few years, given the questionable credit quality of many of the borrowers," the ratings firm said.
It applies a non-performing loan ratio of 30 percent for its stress tests of loans to local government vehicles in a base-case stress scenario because of the risks.
"If local governments provide only limited support, we estimate that lending to these vehicles could add 4 to 6 percentage points to NPLs," said Liao. "The pain will be uneven across the sector."
The major banks should be able to keep the impact to a manageable level because of their stronger credit risk controls. But smaller institutions could struggle due to their proportionally heavier exposure to local government vehicles.
The bad loan ratio could be a longer term concern as the level decreased in the first half on data issued by the top banking regulator yesterday.
The bad loan ratio at commercial banks in China dropped to 1.3 percent by the end of June, down 0.28 percentage points, the China Banking Regulatory Commission said.
Bad loans shrank by 42.5 billion yuan (US$6.3 billion) to 454.9 billion yuan at the end of June.
Meanwhile, banks are shoring up provision to 186 percent, up 31 percentage points from the beginning of the year against bad loan risk.
The banks' non-performing loan ratio is likely to rise as the pace of economic growth slows down, with the ratio staying below 10 percent until the end of 2012, the ratings firm said.
It expects the sector's sour ratio to stay at about 3 percent to 4 percent until the end of this year, due to current economic conditions and the relatively long tenor of loans to government vehicles.
Credit risks are rising but the industry has the strength to avoid them, backed by good operating profitability, strong liquidity and adequate capitalization, Standard & Poor's said.
"For a long time now, we've factored in relatively high credit losses for the Chinese banking sector across cycles," said Liao Qiang, a Standard & Poor's analyst. "But we also recognize the sector's structural strengths."
Lending to local government financing vehicles accounts for 18 percent to 20 percent of total loans in the banking system.
"It's highly likely that some of these loans will turn bad over the next few years, given the questionable credit quality of many of the borrowers," the ratings firm said.
It applies a non-performing loan ratio of 30 percent for its stress tests of loans to local government vehicles in a base-case stress scenario because of the risks.
"If local governments provide only limited support, we estimate that lending to these vehicles could add 4 to 6 percentage points to NPLs," said Liao. "The pain will be uneven across the sector."
The major banks should be able to keep the impact to a manageable level because of their stronger credit risk controls. But smaller institutions could struggle due to their proportionally heavier exposure to local government vehicles.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
