NPL Risk Rising as Chinese Bank Loans Clear 100 Trilion Yuan

The Economic Times: China's bad loans rise: Banking Regulatory Commission

Chinese banks saw their bad loans rise in the first quarter due to the slowing down of the world's second largest economy, but the risks were "under control", the banking regulator said today.

Guo Ligen, vice chairman of China Banking Regulatory Commission (CBRC) told a financial forum that non-performing loans by banks have been rising as many sectors have felt the pains of the slowing economy.
EO: 警惕!中国银行业面临三大压力,不良资产正在急速暴露
Generally, the banking industry is a typical pro-cyclical, that is, when the economy is on the departure time, the banking industry will expand at a faster speed, for example, from 2003 to 2007, the period before the crisis, China banking assets expanded 2 times, while the average growth rate of China's economy close to 12%; and when the economy is in a downward phase, the banking industry for the purpose of repairing their balance sheets, it will shrink at a faster rate tables, such as crisis after banking in Europe and America and other countries.

However, since the crisis, China's banking sector is different from other countries, but still took a counter-cyclical expansion, as of the end of the first quarter of 2016, the total assets of China's banking system from 53 trillion at the end of 2007 to 203 trillion, in 8 years expanded nearly 4 times. But since 2015, the pre-expansion contrarian anti-banking crisis has gradually brought a lot of pressure of reality.
The article lists the warning signs on NPLs:
First, the rapid increase in bad pressure. CBRC bad data from the 2003 publication of commercial banks after 2010, also announced the overall bad situation. Bad data in accordance with the commercial bank credit data released by the People's Bank and the China Banking Regulatory Commission released its proportion of loans in the banking industry, the banking industry can be roughly estimated overall adverse circumstances, the estimated results are as follows:

1. Stock respect. By the end of the first quarter of 2016, China's banking sector non-performing loans of about 2.1 trillion non-performing loan ratio was 2.04%. Among them, the commercial bank non-performing loan balance of 1.39 trillion, non-performing loan ratio was 1.75%; the balance of non-performing loans of commercial banks outside the banking institutions 0.7 trillion non-performing loan ratio was 2.98%.

2. Incremental aspect. 2014 and 2015, the balance of non-performing loans of the banking sector increased by 257.2 billion and 551.4 billion, while the balance of loans to the banking sector increased by 11.2 trillion and 9.8 trillion in new non-performing loans accounted for new loans rose from 2.3 in 2014 % to 5.65%, whereas previously this ratio is less than 1%.

3. Potential negative aspects. If interest loans deemed possible adverse future, then, in 2014 the banking sector non-performing loans and total attention to the scale of 5 trillion by the end of the first quarter of 2016 has risen to 7 trillion, corresponding to loan ratio rose to 5.6% by the 6.7%.

These changes have shown that non-performing assets of China's banking industry has entered a stage of rapid exposure.
Banks have also been moving opposite to the central bank, which is tightening monetary policy. The result was rising financialization of the economy:
By 2015, the central bank began to disinflate, while the banking sector not only did not follow, but to accelerate the expansion of its asset size, but at the same time, the expansion of banking assets, they give the financing of non-financial sector accounted for the proportion of total assets did not rise, but dropped to 52% from 60%. A substantial increase in the business transactions between financial institutions share - from 10% to 25%. Since 2005, the scale of these assets has expanded more than 14 times, that the financial spin is very serious.
WMPs bring in higher profits, but also have higher costs structure for banks:
For example, as of the end of the first quarter of 2016, the banking financial funds have been more than 26 trillion, total liabilities of the banking sector accounted for the proportion of up to 16%, while bank financing the cost of capital substantially 2-3 percent higher deposit costs, virtually raised management costs for banks overall cost of debt and debt funds.
Finally, profits are coming down, indicating the turn has been made:
the same time according to data released by the CBRC, commercial banks net profit growth in 2014 was 9.7%, ending the double-digit growth in previous years, the in 2015 it was further reduced to 2.4%, indicating that the profitability of the banking industry inflection point of change has occurred.

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