19 September 2019
A number of banks, such as the Shanghai Pudong Development Bank, reported a sharp rise in overdue loans in the first half. Photo: Bloomberg
A number of banks, such as the Shanghai Pudong Development Bank, reported a sharp rise in overdue loans in the first half. Photo: Bloomberg

Chinese banks wink at overdue loans

A number of Chinese banks have failed to recognize loans gone sour on their books to avoid having to stump up capital.

Loans to borrowers that have missed a payment are growing three times faster than loans the banks recognize as non-performing, Reuters reported, citing the lenders’ regulatory filings.

A large chunk of these overdue loans sit on the banks’ books at their full value, even when payments have been missed for more than 90 days — the accepted international criteria for classifying loans as non-performing, the news agency said.

This hidden build up of substandard corporate loans, spurred by China’s slowest economic growth in a quarter of a century, flatters the strength of its banks’ balance sheets and would hit earnings if the loans were declared in default and written down.

“In the past, NPLs outnumbered overdue loans,” an unnamed official at the China Banking Regulatory Commission (CBRC) was quoted as saying. “Now overdue loans are surpassing NPLs.”

At 18 listed Chinese banks, overdue loans that had not been written down jumped 57 percent to 645 billion yuan (US$101 billion) in the first half of this year from the end of 2014, while NPLs increased 17 percent to 692 billion yuan, a UBS analysis of Chinese banks’ balance sheet data shows.

For loans overdue for more than three months, the increase was a hefty 166 percent from the end of 2014 to 149 billion yuan (US$23.4 billion), a problem that analysts say is more widespread at mid-tier and smaller unlisted Chinese banks.

“Downward pressure” in the economy was causing Chinese banks to classify loans more flexibly to avoid having to increase the amount of capital they set aside for loan defaults, the CBRC official said.

“The true asset quality of Chinese banks is worse than what appears in the reported NPLs,” said Ritesh Maheshwari, a bank analyst with Standard & Poor’s in Singapore.

In September, rating agency Moody’s started calculating new overdue loans for 90 days or more to better assess asset quality at Chinese banks, since they believed NPLs did not give a full picture, Christine Kuo, a senior Moody’s analyst, told Reuters.

At Shanghai Pudong Development Bank Co., loans delinquent for more than 90 days but not written down doubled in the six months to June to 22.96 billion yuan.

Hua Xia Bank, Ping An Bank, Industrial Bank and China Minsheng Bank also reported a significant rise in overdue loans in the first half of 2015.

China’s big state-owned commercial banks, led by Industrial and Commercial Bank of China Ltd., are more diligent about recognizing their asset quality, bankers and auditors said.

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