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Dealing with debt
BusinessBanking & Finance

Chinese banks brace for bad debt blowout as coronavirus pandemic piles weight on to struggling, debt-ridden businesses

  • Bank of Communication expects non-performing loan level this year to ‘rebound’ from 2019, as coronavirus hit borrowers’ financial health
  • Three leading state-owned banks report stable non-performing loan levels in 2019, even amid slowing economy

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A man walks past a Bank of Communications branch in Hefei, in eastern China’s Anhui province. Photo: Reuters
Georgina Lee

Three leading Chinese state-owned banks reported that their non-performing loan ratios had stayed largely stable in 2019 even as the economy slowed amid a trade war with the US.

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But bank officials and analysts expect their asset quality to worsen this year as the coronavirus strains the financial health of their borrowers.

Major Chinese lenders started reporting their full-year results on Friday. Ahead of Friday’s results, Fitch Ratings said in a press release on Thursday that it expects Chinese banks’ asset quality to weaken, with the extent of the deterioration contingent on the duration of the economic disruptions caused by the pandemic. Globally, Covid-19 has spread from the epicentre of Wuhan, Hubei province, to over 200 countries, claiming more than 24,000 lives.

“Our revised GDP forecasts imply some immediate hit to banks’ asset quality, with the non-performing loan (NPL) ratio for our rated banks potentially rising to around 3.5 per cent from 1.5 per cent at end-June 2019,” said analysts including Vivian Xue, a director, and Elaine Xu, associate director at Fitch Ratings. China’s banking sector-wide NPL ratio was at 1.86 per cent at the end of last year.

Fitch Rating earlier this month cut its 2020 GDP growth forecast for China to 2.2 per cent, from 5.9 per cent before the coronavirus outbreak. China’s 2019 full year GDP grew 6.1 per cent, the slowest in 29 years.

Bank of Communications’ NPL ratio stayed flat in 2019, at 1.47 per cent, versus 1.49 per cent a year earlier. Its net profit attributable to shareholders rose 4.96 per cent to 77.28 billion yuan, from 73.63 billion yuan a year ago.

Senior management at the bank admitted there is a chance its NPL ratio would “rebound” this year, as the impact of the coronavirus began to show, even among some of its lower-risk borrowers.

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