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Asset quality still up

By Yang Zhen (China Daily)
Updated: 2009-04-20 07:58

Asset quality in Chinese banks has not deteriorated despite the banks' recent record-setting lending growth but analysts warn that bad loans might emerge after the economy bottoms out.

Outstanding non-performing loans (NPL) in Chinese banks fell to 549.5 billion yuan ($80.3 billion) at the end of March, 10.8 billion yuan less than at the beginning of this year, the China Banking Regulatory Commission (CBRC) said in a statement last week.

The NPL ratio in Chinese banks had also declined 0.38 percentage points, to 2.04 percent, at the end of March.

Related readings:  Banks' outstanding NPLs, ratio both drop in February  Improved risk controls lessen chance of new NPL surge  Banks show rosy profit rise in 2008  Banks' non-performing loans drop

Chinese banks issued 1.89 trillion yuan of new loans in March, a new monthly lending record, following an also high 2.67 trillion yuan in new loans over January and February, according to figures from the central bank.

China's total new lending in the first quarter is 4.58 trillion yuan, up 244.4 percent, or 3.25 trillion yuan, from the same period the previous year.

The CBRC lifted annual lending quotas on domestic banks last November to boost economic growth during the global financial crisis.

But analysts are still not convinced that asset quality in Chinese banks will be able to hold up in the middle of a global economic downturn.

"The NPL ratio in domestic banks is likely to decline since their total outstanding loans will increase sharply thanks to the lending surge. But the number of outstanding bad loans in those banks may rise," Bohai Securities analyst Zhang Jixiu wrote in a report.

Financial data from previous recession in the US and Hong Kong indicates asset quality problems in banks usually emerge after the economy has bottomed out, Zhang added.

Zhang predicted bad loans could increase in the fourth quarter.

The CBRC has stepped up efforts to control risk management in Chinese banks to prevent such a rise.

The commission has started auditing new loans in Chinese banks to learn where they actually end up and whether there are any regulations broken during the loan application process, the 21st Century Business Herald reported.

China's banking regulator asked the banks to submit a report on their lending growth before April 16 and may publish the results of its audit at the beginning of May, reported the newspaper, quoting an anonymous banking official.

Chinese banks have also been asked to improve their capital adequacy ratio and provision coverage ratio to prepare for deterioration in assets quality.