Slowing Chinese economy prompts rise in bad loans

Combined with the property slowdown, nonperforming bank loans are among the things that will keep a Chinese policymaker awake at night, so the past week will not have been particularly restful one in Beijing after China’s top five banks reported sharp rises in bad loans.

Sixteen listed Chinese banks reported nonperforming loans totalling 604.65 billion yuan (€79.25 billion) as of the end of September this year, up 31.7 per cent from a year ago, the Xinhua news agency reported, citing data from the banks’ quarterly business reports.

China's five biggest banks are the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China, Bank of China, China Construction Bank, and the Bank of Communications (Bocom); and four of these, including the sector leader ICBC, reported their largest quarterly rise in bad loans in two years as the slowing economy made it more difficult for companies to repay their debts.

Data last month showed China’s gross domestic product expanded by 7.3 per cent in the third quarter from a year earlier, the lowest rate since the global financial crisis. According to the central bank, falling deposits marked the first quarterly decline for China’s banking industry since at least 1999.

The levels of bad loans remain very low and the banks themselves do not see the nonperforming loans spiralling out of control. Bocom, China's fifth-largest bank, said its bad loans came mostly from the east of the country and were due to economic restructuring.

And Bocom said that the risks of bad loans spreading from SMEs to large enterprises, and from the eastern region and coastal areas of China to central and western regions, had intensified.

And the banks remain remarkably profitable. The combined net profits of the 16 banks reached more than a trillion yuan (€130 billion) in the first three quarters, up 9.7 per cent year on year. At the same time, while it’s a strong figure, that represents a significant slowdown on the double-digit growth rates of recent years.