Coronavirus impact: China’s first-quarter bad loans climb as businesses suffer amid nation’s worst economic slump in decades

Bad debt at Chinese banks climbed in the first quarter after the coronavirus outbreak brought the world’s second-largest economy to a standstill.

The non-performing loan ratio rose to 2.04 per cent at the end of March, up 0.06 percentage point from December, the China Banking and Insurance Regulatory Commission (CBIRC) said at a press briefing in Beijing on Wednesday. That comes even as lenders agreed to delay 880 billion yuan (US$124 billion) in repayments on loans to smaller businesses and rolled over 576.8 billion yuan of debt in the period, according to the regulator.

Chinese banks, led by Industrial and Commercial Bank of China (ICBC), are bracing for an unprecedented drop in profits this year as they grapple with the fallout of Covid-19. Lenders in the world’s most populous nation face additional credit costs of almost 1.6 trillion yuan, S&P Global forecast earlier this month, warning the sharp increase would pressure their profitability and capital strength.

The nation’s biggest banks will release first-quarter earnings on Tuesday next week, following reports from other global lenders showing steep credit losses. JPMorgan and Wells Fargo last week posted their highest loan-loss provisions in a decade.

The CSI bank index fell 0.25 per cent as of 11:13am, compared with a 0.09 per cent drop for the broad index.

The strain comes as regulators have allowed banks to take a more lenient approach to classifying bad loans in a bid to support lending and keep the economy afloat. The government is pushing banks to advance more credit to bail out small businesses, which were among the hardest hit by the lockdown.