China banks' bad loan ratio climbs to 10-year high at end-2018

BEIJING/SINGAPORE (Reuters) - Chinese commercial banks’ non-performing loan (NPL) ratio hit a 10-year high of 1.89 percent at the end of last year amid an economic slowdown, an official with the country’s banking regulator said on Friday.

Total NPLs of commercial banks amounted to 2 trillion yuan ($296.52 billion) at the end of December, unchanged from the third quarter, Liu Zhiqing, deputy head of the statistics department of the China Banking and Insurance Regulatory Commission (CBIRC), told reporters at a quarterly press conference.

“Risks remain under control in general,” he said.

Separate from NPLs, “special mention” loans, or lending potentially at risk of becoming non-performing, rose to 3.4 trillion yuan by end-December, accounting for 3.16 percent of the total loan volume for commercial banks, Liu said.

For Chinese lenders, the pace of bad debt build-up has shown no signs of slowing as the world’s second-largest economy faces persistently weakening domestic demand and trade friction with the United States.

Data later this month is expected to show the Chinese economy grew around 6.6 percent in 2018 - the weakest since 1990. Analysts are forecasting a further loss of momentum this year before policy support steps begin to kick in.

To handle mountains of bad loans, Chinese banks accelerated the pace of bad loan disposal last year, resolving nearly 2 trillion yuan in soured assets, compared with 1.4 trillion yuan in 2017, CBIRC spokesman and Chief Risk Officer Xiao Yuanqi said at the press conference.

Banks also increasingly turned to unconventional measures such as asset-backed securities and debt-for-equity swaps and increased their loan loss reserves by 676.2 billion yuan over the prior year to 3.7 trillion yuan to shore up their ability to fend off risks, the officials said.

The total domestic asset of Chinese banks stood at 261.4 trillion yuan at end-December, up 6.4 percent from a year earlier.

($1 = 6.7450 Chinese yuan)