BANKS in China will continue to see credit risks rising as asset qualities at an increasing number of larger companies and industries will begin to deteriorate amid the country’s economic slowdown and reform, PricewaterhouseCoopers said in a report yesterday.
The non-performing loan ratio for the 10 largest listed banks in China rose by 0.07 percentage points to 1.07 percent in the first half of 2014 while the overdue loan ratio rose 0.34 percentage points to 1.63 percent, the PwC report said, adding that a gap has widened between the two ratios.
The report warned that a further rise in the overdue loan ratio is an alarming signal for future asset quality, and revealed that joint-stock banks such as Shanghai Pudong Development Bank and the Industrial Bank were leading the rise in bad loans.
Banks will face constant credit quality pressure as more companies will be hit by a controlled slowdown of the Chinese economy, a cooling real estate market, government’s efforts to cut excessive capacity, and a buildup of local government debt.
The manufacturing, wholesale and retail sectors recorded the highest proportion of bad loans as of 30 June, rising 13.39 percent and 19.43 percent year on year respectively.
The report coincided with news that state-owned Sinosteel has 690 million yuan (US$112 million) in overdue loans with several banks at the end of July, according to the Economic Information Daily, owned by Xinhua news agency, citing sources within the China Banking Regulatory Commission.
Although the Sinosteel was a single case, it indicated that more large companies and state-owned enterprises with excessive capacities were inclined to default as reform efforts continued, PwC China Financial Services partner Patrick Zhou said.
Small businesses have generated the most bad loans so far due to their weaker management of risks but a rising number of larger companies will be involved as the situation deteriorates, Zhou said.