Bad loans fall, sys­tem­atic risk rises for Chi­nese banks

The Pak Banker - - Front Page -

BEI­JING: Thanks to the im­prove­ment of risk man­age­ment and in­ter­nal ef­fi­ciency, Chi­nese banks have re­duced their bad loans in the last two years. How­ever, they are still keep­ing highly alert against sys­tem­atic risks loom­ing in lo­cal govern­ment bonds and the prop­erty mar­ket.

Bad loans in China's bank­ing sec­tor shrank to 1.6 per­cent by the end of 2009 from 2.4 per­cent by the end of 2008. Bad loans of listed banks were all kept well be­low 1.3 per­cent at the end of the third quar­ter of 2010, ex­cept the Agri­cul­tural Bank of China, which was the last one to go pub­lic and re­ported 2.1 per­cent bad loans.

In the mean time, the pro­vi­sion­cov­er­age ra­tio of China's bank­ing sec­tor, an in­di­ca­tor of banks' ca­pa­bil­ity to deal with non-per­form­ing loans, rose from 116 per­cent in 2008 to 155 per­cent by the end of 2009. By the end of the third quar­ter of 2010, the av­er­age pro­vi­sion-cov­er­age ra­tio of the 16 listed Chi­nese banks reached 232 per­cent.

Banks be­gan to pay more at­ten­tion to guard­ing against sys­tem­atic risks when the govern­ment adopted a re­laxed mon­e­tary pol­icy to main­tain eco­nomic growth through the global fi­nan­cial cri­sis. The risks from the boom­ing prop­erty mar­ket and the swelling lo­cal govern­ment bonds are in­creas­ingly in par­tic­u­lar.

Sev­eral pres­sure tests have been con­ducted for banks. Al­though the re­sults have shown that risks re­mained "con­trol­lable," com­mer­cial banks are still on high alert and have strength­ened their su­per­vi­sion on cap­i­tal flow and credit con­cen­tra­tion in cer­tain ar­eas and clients.

Liu Mingkang, chair­man of the China Bank­ing Reg­u­la­tory Com­mis­sion, said on Wed­nes­day that a 2 per­cent bad loan limit is tol­er­a­ble and rea­son­able for Chi­nese banks. -PB News

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