BEIJING (Reuters) - China’s loan defaults, repayment delays and bad loans all rose in the first quarter as the coronavirus outbreak triggered unprecedented economic challenges, officials at the banking and insurance regulator said on Wednesday.
The sector’s non-performing loan (NPL) ratio climbed in the first quarter to 2.04%, and it will continue to rise at a moderate pace in the second quarter, said Xiao Yuanqi, chief risk officer at the China Banking and Insurance Regulatory Commission (CBIRC).
“The coronavirus has brought unprecedented shocks to China’s economic and social development,” Huang Hong, a vice chairman of the CBIRC, told a news conference in Beijing on Wednesday.
Xiao said more than 450 billion yuan worth of bad loans were settled in the first quarter, up 81 billion yuan from the same period last year.
But the banking sector still maintains a “strong ability” to resist risks, he added.
China’s economy shrank an unprecedented 6.8% in the first quarter, as stringent lockdown measures and shop closures wreak havoc on business activities and consumer spending.
Many analysts believe bad debt levels at Chinese banks are much higher than reported.
Huang said the banking sector deferred principle and interest payments on about 880 billion yuan ($124.21 billion) of loans extended to small and micro enterprises, a vulnerable group hardest-hit during the crisis, from Jan. 25 to end-March.
Loans to the SMEs grew particularly fast in the first quarter, with their outstanding amount at 12.55 trillion yuan by end-March, up a robust 25.93% year on year.
Total coronavirus-related new loan issuance in the first quarter was more than 2.5 trillion yuan ($352.87 billion), he said.
The economic fallout has also weighed on Chinese insurers, as their revenue growth slumped from historic levels, while their investment returns were hampered by volatility in global capital markets, Huang said.
Their first-quarter insurance premium grew just 2.3% to 1.67 trillion yuan, while insurance payout reached 301.9 billion yuan.
But the sector’s liquidity conditions are stable thanks to structural changes, which will help counter shocks, Huang added.
Cao Yu, vice chairman of the CBIRC, said the regulator will also step up clear-up efforts on problematic smaller banks, while accelerating reform and consolidation of China’s more than 4,000 small and medium-sized banks.
“The impact on small and medium-sized banks are also relatively obvious,” he said. “This year, you will see that the reform and restructuring of small and medium-sized banks will be more intensive, especially in the field of market-oriented restructuring.”
The officials also reiterated the regulator's tough stance on financial fraud, illegal funds into real estate and client data leaks. Chinese coffee chain Luckin Coffee's LK.O fraudulent financial reporting serves as a lesson and the CBIRC will support serious punishment by relevant departments, Cao said.
Chinese banks’ exposure to Luckin is small, and they have been guided to step up risk monitoring and loan management, he said.
Over 10 foreign and domestic insurers are involved in its insurance claim over a directors’ and officers’ (D&O) liability insurance worth $25 million, which it purchased before going public to cover compensation costs after it admitted that its sales figures had been fabricated, he said, but Luckin’s request is still under investigation as the case remains “complex”.
Reporting by Yawen Chen and Se Young Lee; Additional reporting by Cheng Leng; Editing by Kim Coghill and Jacqueline Wong
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