China’s Banks Hit by Bad Loans Despite $212 Billion Relief

(Bloomberg) -- Bad debt at Chinese banks climbed in the first quarter even as lenders deferred payments on and rolled over a combined 1.5 trillion yuan ($212 billion) in loans after the coronavirus outbreak brought the world’s second-largest economy to a standstill.

After allowing banks to take a more lenient approach on how they classify bad debt, regulators in Beijing on Wednesday revealed the industry’s non-performing loan ratio nudged up just 0.06 percentage point to 2.04% at the end of March. The increase was held at bay as lenders agreed to let small businesses defer payments on 880 billion yuan in debt and rolled over another 576.8 billion yuan, according to the China Banking and Insurance Regulatory Commission.

“The virus has barely made any impact on banks’ asset quality in the first quarter thanks to the policy on delaying loan payments,” said Wang Jian, an analyst at Guosen Securities Co. “We will see a more significant increase in the second quarter.”

Chinese banks, led by Industrial & Commercial Bank of China Ltd., are bracing for an unprecedented drop in profits this year as they grapple with the fallout of Covid-19. Lenders in the world’s most populous nation face additional credit costs of almost 1.6 trillion yuan, S&P Global forecast earlier this month, warning the sharp increase would pressure their profitability and capital strength.

The nation’s biggest banks will release first-quarter earnings on Tuesday next week, following reports from other global lenders showing steep credit losses. JPMorgan Chase & Co. and Wells Fargo & Co. last week posted their highest loan-loss provisions in a decade.

The CSI bank index fell 0.15% as of 2:26 p.m., compared with a 0.7% gain for the broad index.

The government is also pushing banks to advance more credit to bail out small businesses, which were among the hardest hit by the lockdown.

The industry NPL ratio will continue to climb in the second quarter, but overall risks are under control, according to Xiao Yuanqi, chief risk officer at CBIRC. Meanwhile, the regulator said it has drafted plans to restructure some medium and small-sized banks, mostly with market-oriented measures. At least three banks were bailed out or rescued last year costing at least $18 billion.

About 7.1 trillion yuan of new loans were handed out in the first three months of the year, up by more than 20% from a year earlier, official data show. On Tuesday, the State Council announced plans to lower the bad-loan coverage ratio for mid-sized and small banks by 20 percentage points in phases, unleashing additional credit to support small and micro-sized businesses.

China’s Banks Hit by Bad Loans Despite $212 Billion Relief

The nation’s insurance companies are also under stress. Growth in insurance premiums plunged more than 13 percentage points in the quarter, rising just 2.3% from a year earlier. Credit insurance claims jumped 50%, according to the CBIRC.

©2020 Bloomberg L.P.

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