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Thursday, November 19, 2015, 17:27

Overdue bank loans soar in China

By Reuters

BEIJING - Some Chinese banks, hit by a surge of troubled borrowing, are troubled with non-performing assets.

Loans to borrowers that have missed a payment are growing three times faster than loans the banks recognise as non performing, according to their regulatory filings.

An increasingly 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.

This build up of corporate loans would hit earnings if the loans were declared in default and written down.

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 show.

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.

Recognising loan losses wasn't an issue among Chinese banks prior to 2012, when the volume of loans categorised as overdue but unimpaired was negligible.

However, lenders have currently grown wary of fully declaring bad debt, senior bankers and industry players said.

If they do declare a lender as delinquent, it would have a domino effect, since the information is posted on the central bank's national credit database, prompting all banks to write down their loans to the same borrower.

Bankers are reluctant to take such a hit to profit if they believe the loan can eventually be recovered, in full or part.

"If an overdue loan is classified as entirely non-performing, then we have to set aside 100 percent in provisions," said a senior executive at a joint-stock Chinese bank. "But we may not have 100 percent of loss. So it's not reasonable to put aside so much. It's a waste of capital."

In September, rating agency Moody's started calculating new overdue loans for 90 days or more to better assess asset quality at Chinese banks, 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 recognising their asset quality, bankers and auditors said.

More than 99 percent of loans that have missed a payment for more than three months were classed as non-performing, an ICBC executive told analysts last month on the bank's third-quarter earnings call.

But at several mid-tier banks, provisions for possible loan losses are seldom matching growth in the overdue loan book, pointing to a potential capital shortfall.

At Bank of Chongqing Co, for example, long-date overdue loans more than doubled in the first half of the year, while provisions only increased by about 10 percent.

"There's a risk that provisioning coverage will be insufficient," said Grace Wu, Fitch's head of China bank ratings.

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