China’s major banks are ramping up efforts to get rid of their bad loans, and last year, they wrote or spun off more than twice the amount they did in 2013, the Wall Street Journal reported.
But as the country’s economy slows further, the lenders could either let bad loans rise or undertake more write-offs which would further crimp profit growth, the newspaper said.
China’s four biggest banks—Bank of China Ltd., Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and China Construction Bank Corp.—wrote off and transferred out 128.98 billion yuan (US$20.88 billion) in loans last year, up from 52.11 billion yuan in 2013.
Compared with nonperforming loans they kept on their books, last year’s write-offs accounted for about one-quarter of the size, compared with 15 percent in 2013, the report said.
China Construction Bank alone wrote off 35.66 billion yuan worth of loans, more than double the 16.7 billion yuan in 2013. Its net profit rose 6.1 percent to 227.83 billion yuan last year.
Of all the major banks, AgBank saw the biggest increase in write-offs.
It wrote off 29.22 billion yuan worth of bad loans, up threefold from 9.78 billion yuan in 2013. The bank also sold more than 26 billion yuan worth of nonperforming loans to asset management companies at 37 percent of their face value.
Song Xianping, AgBank’s chief risk officer, said that the Ministry of Finance has become “more relaxed and flexible” when it comes to banks disposing of their bad loans.
In its earnings report, Bank of China pledged to be “more active in resolving NPLs and create new disposal methods via multiple channels”.
Even without last year’s write-offs, nonperforming loans ratio of all four big four banks would have remained below 2 percent, a very satisfactory level in the banking industry.
But the banks expect the quality of their assets to continue to sour amid the slowing economy.
ICBC said that it intends to keep its nonperforming loans ratio below 1.45 percent at the end of this year. It was at 1.13 percent at the end of 2014.
– Contact us at [email protected]