China's regional banks to face a tidal wave of bad debt

 China warned to prepare for 'big rise' in bad loans as financial system ... a “big rise” in non-performing loans as part of Beijing's efforts to brace its financial ... Chinese banks could run into difficulty because of their operations, but it's ... rural and smaller regional banks, as well as lenders in poorer regions.

 

• The China Banking and Insurance Regulatory Commission said this week Beijing’s efforts to avoid a broader financial crisis are facing fresh challenges
• China’s official statistics paint a picture of a sound financial system, but cracks are appearing in the banking system at a grass-roots level

 China’s banking regulator has asked the country’s lenders to make preparations for a “big rise” in non-performing loans as part of Beijing’s efforts to brace its financial system for shocks from the coronavirus at home and a hostile environment abroad.

BEIJING – China’s small regional banks are rapidly approaching a wave of non-performing debt that threatens to undermine the financial health of vulnerable lenders. As part of the country’s coronavirus stimulus package, the government allowed small to medium-sized businesses to defer loan repayments and interest payments. According to the China Banking and Insurance Regulatory Commission, the renewals were applied at 6.6 trillion yuan ($ 1 trillion) at the end of December. This break in debt service helped sustain small businesses, along with declining interest rates and easing social security premium payments. However, the debt service cancellation expires at the end of this month. “Non-performing loans are responsible for a higher debt ratio subject to repayment deferral than normal debt,” said Gu Shu, chairman of the Agricultural Bank of China, one of the four major state-owned banks. Small businesses suffered from the slowdown in the Chinese economy in 2019 following the trade war with the US. The coronavirus unleashed a double blow. According to an analysis by the Peterson Institute for International Economics, about 2.3 million companies failed in the first half of 2020, or 6% of the total. The government plans to expand debt cancellation for micro-businesses, but has not disclosed the size of eligible businesses. There is ongoing concern that bad loans that were once hidden will surface once the March 31 deadline has passed. The Chinese banking sector carried a balance of 3.5 trillion yuan in non-performing loans at the end of last year. If debt repayment ends, additional bad loans could reach as much as 700 billion yuan this year, according to a projection by China Securities. Financial regulators are increasing vigilance. Last year, more than 3 trillion yuan in non-performing loans was divested, an increase of more than 30% from the previous year. “The number of non-performing loans to be divested is likely to increase this year,” Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told reporters this month. Guo corroborated that prediction by saying the body is still interviewing commercial banks. China’s five-year plan through 2025 includes a provision to improve the mechanisms for identifying and divesting non-performing loans. The goal is to avoid a scenario where uncertainties from the pandemic and the global economy spill over into the country’s financial system.

Read more at: https://www.worldnpost.com/china-warns-regional-banks-to-brace-themselves-for-a-tidal-wave-of-bad-debt/

BEIJING – China’s small regional banks are rapidly approaching a wave of non-performing debt that threatens to undermine the financial health of vulnerable lenders. As part of the country’s coronavirus stimulus package, the government allowed small to medium-sized businesses to defer loan repayments and interest payments. According to the China Banking and Insurance Regulatory Commission, the renewals were applied at 6.6 trillion yuan ($ 1 trillion) at the end of December. This break in debt service helped sustain small businesses, along with declining interest rates and easing social security premium payments. However, the debt service cancellation expires at the end of this month. “Non-performing loans are responsible for a higher debt ratio subject to repayment deferral than normal debt,” said Gu Shu, chairman of the Agricultural Bank of China, one of the four major state-owned banks. Small businesses suffered from the slowdown in the Chinese economy in 2019 following the trade war with the US. The coronavirus unleashed a double blow. According to an analysis by the Peterson Institute for International Economics, about 2.3 million companies failed in the first half of 2020, or 6% of the total. The government plans to expand debt cancellation for micro-businesses, but has not disclosed the size of eligible businesses. There is ongoing concern that bad loans that were once hidden will surface once the March 31 deadline has passed. The Chinese banking sector carried a balance of 3.5 trillion yuan in non-performing loans at the end of last year. If debt repayment ends, additional bad loans could reach as much as 700 billion yuan this year, according to a projection by China Securities. Financial regulators are increasing vigilance. Last year, more than 3 trillion yuan in non-performing loans was divested, an increase of more than 30% from the previous year. “The number of non-performing loans to be divested is likely to increase this year,” Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told reporters this month. Guo corroborated that prediction by saying the body is still interviewing commercial banks. China’s five-year plan through 2025 includes a provision to improve the mechanisms for identifying and divesting non-performing loans. The goal is to avoid a scenario where uncertainties from the pandemic and the global economy spill over into the country’s financial system.

Read more at: https://www.worldnpost.com/china-warns-regional-banks-to-brace-themselves-for-a-tidal-wave-of-bad-debt/

BEIJING – China’s small regional banks are rapidly approaching a wave of non-performing debt that threatens to undermine the financial health of vulnerable lenders. As part of the country’s coronavirus stimulus package, the government allowed small to medium-sized businesses to defer loan repayments and interest payments. According to the China Banking and Insurance Regulatory Commission, the renewals were applied at 6.6 trillion yuan ($ 1 trillion) at the end of December. This break in debt service helped sustain small businesses, along with declining interest rates and easing social security premium payments. However, the debt service cancellation expires at the end of this month. “Non-performing loans are responsible for a higher debt ratio subject to repayment deferral than normal debt,” said Gu Shu, chairman of the Agricultural Bank of China, one of the four major state-owned banks. Small businesses suffered from the slowdown in the Chinese economy in 2019 following the trade war with the US. The coronavirus unleashed a double blow. According to an analysis by the Peterson Institute for International Economics, about 2.3 million companies failed in the first half of 2020, or 6% of the total. The government plans to expand debt cancellation for micro-businesses, but has not disclosed the size of eligible businesses. There is ongoing concern that bad loans that were once hidden will surface once the March 31 deadline has passed. The Chinese banking sector carried a balance of 3.5 trillion yuan in non-performing loans at the end of last year. If debt repayment ends, additional bad loans could reach as much as 700 billion yuan this year, according to a projection by China Securities. Financial regulators are increasing vigilance. Last year, more than 3 trillion yuan in non-performing loans was divested, an increase of more than 30% from the previous year. “The number of non-performing loans to be divested is likely to increase this year,” Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told reporters this month. Guo corroborated that prediction by saying the body is still interviewing commercial banks. China’s five-year plan through 2025 includes a provision to improve the mechanisms for identifying and divesting non-performing loans. The goal is to avoid a scenario where uncertainties from the pandemic and the global economy spill over into the country’s financial system.

Read more at: https://www.worldnpost.com/china-warns-regional-banks-to-brace-themselves-for-a-tidal-wave-of-bad-debt/