China bank first-quarter bad loans hit 16-year-high as regulator tightens oversight

BEIJING/SINGAPORE (Reuters) - The amount of non-performing loans (NPLs) at China’s commercial banks rose to 2.16 trillion yuan ($317.66 billion) at the end of March, the highest since the end of 2003, official data showed on Friday, as Beijing steps up efforts to curb financial risks.

While NPLs rose 95.7 billion yuan from the start of the year, the industry-wide (NPL) ratio declined slightly to 1.8% at the end of the first quarter, compared with 1.89% at the end of 2018, Liu Zhiqing, deputy head of the statistics department at the China Banking and Insurance Regulatory Commission (CBIRC) told reporters.

The dip in the NPL ratio likely stemmed from record bank lending in the quarter. Many analysts believe that the NPL ratio of Chinese banks is significantly higher than reported.

The bad-loan data comes at a time Chinese authorities have been pushing banks to sharply hike their lending to small and mid-sized businesses, to help combat a slowdown in economic growth.

To fend off potential systemic financial risks, Beijing is tightening grips on its 276 trillion yuan banking sector, with stricter oversight of lenders’ asset quality.

New draft rules released last month require lenders to recognize not only bad loans but also defaulted bonds, souring interbank assets and off-balance sheet businesses as non-performing assets, and that the lenders should set aside more capital as a buffer.

The draft rules also require banks to classify loans that are more than 90 days overdue as NPLs, even if those loans are backed by collateral.

Liu, commenting on the draft rules, said they would have “limited impact” on banks’ asset quality, and would not trigger a spike in non-performing assets.

He said the regulator would encourage banks capable of doing so of classifying loans more than 60 days overdue as NPLs, but that was not compulsory.

Chinese banks disposed of 368.9 billion yuan in bad loans over the first quarter, an increase of 30.9 billion yuan compared with a year earlier, Liu said. No details were provided on the form of the disposals.

According to Friday’s data, lenders beefed up their capital strength in January-March to fend off risks. The average capital adequacy ratio at commercial banks at end-March was 14.18%, which the regulator said was 0.57 percentage point higher than one year earlier. The banks’ provision coverage ratio rose 3.13 percentage points over the three-month period to 192.2%, it said.

The CBIRC, which also oversees the operations of China’s 19.1 trillion yuan insurance sector, said insurers’ premium income in the first quarter rose 15.9% from a year earlier to 1.6 trillion yuan.

The outstanding amount of insurance fund investment rose to 17.1 trillion yuan, up 3.9% from end-2018.

Reporting By Cheng Leng and Judy Hua in BEIJING and Shu Zhang in SINGAPORE; Editing by Richard Borsuk