China Bad Debts Increase in Q1

Bad debt at Chinese banks increased ￥54 billion in Q1 (it increased ￥100 billion in all of 2013) to ￥646 billion, NPL ratio up to 1.04% from 1.00% at the end of 2013. The NPL ratio was 1.1% in 2011.

Banks have set aside enough reserves to handle more than a doubling of NPLs, but as noted in Tricks For Hiding NPLs, the 1.04% number is understated.

NPLs are a lagging indicator. By the time bad debt is rising enough to be a problem, a crisis will already be evident. The thing to look for moving forward then is the rate at which NPLs rise. There were a lot of loans in January so the Q1 NPL rate didn't rise too much. Credit growth was slower in April though, and if it is slow in May and June, and NPLs increase at the same rate (9.1% in Q1) or faster, then the NPL ratio will jump and one can definitely say the indicator shows a turn in the market.

一季度新增不良541亿 银监会紧急发文摸底

"a quarter of new non-performing loans of nearly 60 billion," the rumor has basically been confirmed.

May 15, 2014, the CBRC issued a regulation quarter statistics. Data show that as of the end of the first quarter, the domestic and foreign banking institutions of the total foreign currency assets of 159.5 trillion, an increase of 12.89%; total domestic and foreign banking institutions and foreign currency liabilities of 148.7 trillion, an increase of 12.54%.

The same period, commercial banks non-performing loans 646.1 billion, representing an increase of 54.1 billion year, the NPL ratio 1.04%, up 0.04 percentage points compared with the beginning. NPL ratio has increased by nine consecutive quarters, and for the first time exceeded 1%.

Before performing rate eight quarters are: 0.94%, 0.94%, 0.95%, 0.95%, 0.96%, 0.96%, 0.97% and 1.00%, starting from the time the first quarter of 2012.

China Banking Regulatory Commission said that in 2014 a quarter of the overall credit quality remained stable, increased credit risk.

From the beginning of the first quarter of 2014, the CBRC also disclosed the new normal and special mention loans and ratios. As of the end, the balance of normal commercial bank loans 59967100000000, accounting for 96.46%; Balance mention loans 1555300000000, accounting for 2.50 percent.

Due to the rapid increase in non-performing loans in the first quarter, the CBRC had in March issued an emergency "guidance on prevention and control of non-performing loans in 2014 to do the work" (hereinafter "the" opinion ""), which require banking institutions should find out key areas, key industries and key customer risk profile, strengthen judged the situation, develop a reasonable and non-performing loans ratio for the year "dual control" goal.

According to the 21st Century Business Herald reporter, under the requirements of the CBRC, Guangdong, Zhejiang, Jiangsu and other non-performing loans increase local tissue banks Banking Board held an emergency area more thoroughly research will implement CBRC "opinion" requirement, and for the territorial NPLs situation thoroughly, and discuss response options, and make a unified deployment.

"Opinions" stressed, in particular, to strive to carry on industry overcapacity, financing platform, real estate and steel trade and other key areas, the rapid rise in non-performing loans as well as regional customers and small and micro enterprises Group's credit risk investigation and prevention, strengthen the balance sheet activities and transfer within and outside the business risk monitoring.

CBRC also requires banks to strictly loan quality classification criteria, fully reveal credit risk. Do not Move sheet through other means to cover bad loans, borrowers prevent the use of "old debt" and "bypass" and other means to conceal the deterioration of loan quality and made in a timely manner to carry out stress tests.

Risk for non-performing loans of commercial banks increased credit risk for impairment. End of the first quarter, the loan loss reserve balance of commercial banks was 1.768 trillion, representing an increase of 94.1 billion year; provision coverage ratio was 273.66 percent, down 9.05 percentage points over the beginning; provision for loan ratio was 2.84%, up 0.02 percentage points over the year.