China

CBIRC warns of Rebound of Non-Performing Loans

The China Banking and Insurance Regulatory Commission (CBIRC) has revealed that the number of bad loans and non-performing loans have become cause for concern.

The bad-loan ratio in the country has reportedly risen by eight basis points from the beginning of 2020, according to an article by The Edge Markets. Similarly, the number of non-performing loans are set to increase, the CBIRC announced amid the pandemic.

According to CBIRC, a number of SMEs are facing accumulated risks and deteriorating asset quality. In addition, assets have also reportedly been allocated into the stock and housing markets, which violates regulations and has caused asset bubbles.

Banks can reportedly book interest income when it is due, despite the fact that actual repayments had been delayed, under current rules, a CBIRC official told Bloomberg News in Q2 2020. This hadn’t been reflected in banks’ profits and there will be a lag in the risk exposure until later this year or next year, the official said.

On the back of these revelations, CBIRC urged lenders to prepare a strategy in order to respond to a rebound in non-performing loans, despite the fact that they are yet to be fully exposed. Banks have also been encouraged to boost profit retention to accumulate capital, while appropriately reducing or limiting bonuses.

CBIRC has stated that banks face a combined shortfall of at least USD50 billion in bad-loan provisions to meet a minimum regulatory requirement. The regulator also said that it will also push the implementation of the latest policy of provincial governments’ special bond issuance, according to the Edge Markets article.