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Status Quo and Trend of Credit Risk in China’s Banking Sector: Based on the Analysis of 21 Listed Banks
2015-08-14
By Zhu Hongming & Lei Wei
Research Report Vol.17 No.4, 2015
I. Status Quo of Credit Risk in China’s Listed Banks
1. The non-performing loan ratio still remains low even after the continuous and accelerating rebound.
(1) The non-performing loan ratio rebounds continuously and rapidly. By the end of 2014, the average non-performing loan ratio of 21 listed banks continued the rebounding trend in 2013 and increased to 1.20%. The increase was 0.23%, 0.18% higher than in 2013, showing an accelerating trend . There are two reasons. First, China has to simultaneously deal with the slowdown in economic growth, make difficult structural adjustments, and absorb the effects of previous economic stimulus policies. Though the economy maintained stable, enterprises suffered from decreasing profits. Second, it is impossible to maintain the non-performing loan ratio below 1%, which is bound to rebound.
Specifically speaking, 14 listed banks, compared with only three in 2013, had a non-performing loan ratio of over 1% by the end of 2014, among which Agricultural Bank of China, China Citic Bank and Bank of Communications reached 1.54%, 1.30% and 1.25%, respectively.
Except Bank of Ningbo, Chongqing Rural Commercial Bank, and Shengjing Bank, other 18 listed banks had an increasing non-performing loan ratio in 2014, three more banks than in 2013. The top five are Industrial Bank, China Everbright Bank, Agricultural Bank of China, China Minsheng Bank, Shanghai Pudong Development Bank and Bank of Chongqing, all with a rise of no less than 0.30%.
(2) The non-performing loan generation rate is high. In 2014, the average non-performing loan generation rate of the 21 listed banks was 0.80%, among which China Minsheng Bank, Ping An Bank, Industrial Bank and China Merchants Bank exceeded 1%.
Compared with 2013, the generation rate of non-performing loans of the listed banks rose by 0.41% on average in 2104. There was an increase of over 0.6% in Agricultural Bank of China, Ping An Bank and China Merchants Bank.
(3) The loan migration ratio increases significantly. In 2014, the migration ratio for normal loans of the listed banks soared. On the one hand, the median of the migration ratio for normal loans of 16 A-share banks reached 2.94%, 1.2% higher than that of 2013. On the other hand, as far as the specific banks are concerned, 14 A-share banks experienced a sharp increase in the migration ratio for normal loans migration ratio, whereas Ping An Bank and Hua Xia Bank had a slight drop.
In 2014, listed banks had an increasing migration ratio for special-mention loans. On the one hand, the median of the migration ratio for normal loans of 16 A-share banks was 22.30%, up 1.98% from 2013. On the other hand, as for specific banks, though Ping An Bank, China Minsheng Bank and Bank of China experienced a falling migration ratio for special-mention loans, other 13 A-share banks saw a significant increase in the migration ratio for normal loans.
(4) The non-performing loan ratio is still low. By the end of 2014, the ratio of listed banks, though rebounding rapidly to 1.2%, was still way below that of other major economies and the average of the 20 largest banks in the world (see Table below).
|
Economy |
The United States （2014） |
China （2014） |
Japan（2014） |
Germany（2013） |
France（2014Q3） |
|
non-performing loan ratio |
1.9 |
1.2 |
1.9 |
2.7 |
4.5 |
|
Economy |
The United Kingdom（2014Q2） |
Italy （2014Q2） |
Brazil （2014） |
Russia （2014） |
India （2014） |
|
non-performing loan ratio |
2.7 |
17.3 |
2.9 |
6.7 |
4.3 |
Note: According to the data disclosed by China Banking Regulatory Commission, the non-performing loan ratio of China’s commercial banks and of banking financial institutions was 1.29% and 1.64%, respectively in 2014.
Source: IMF IFS database.
There are three reasons. First, the base number was small. The non-performing loan ratio of listed banks was only 0.97% in 2013. Second, stable macro-economic development in 2014 hindered the rebound of non-performing loans. Despite severe pressure from economic downturn, China has taken measures to maintain steady growth and explore new growth momentum and thus generating a GDP growth rate of 7.4%, only 0.3% less than in 2013. Third, banks devoted more efforts to disposing or writing off non-performing loans. With an increase of 123.32% from 2013, a total of 234.765 billion yuan of non-performing loans was disposed or written off in 2014, 0.42% of the outstanding loans at the year end, up 0.21% from 2013. The proportion of China Minsheng Bank, Ping An Bank and Industrial Bank even reached over 0.7%. If not including the disposal or write-off in 2014, the non-performing loan ratio of listed banks would reach 1.62%, an increase as high as 0.65% from a year earlier.
(5) Huge differences exist in different types of listed banks. To start with, they have distinctly different non-performing loan ratios. In 2014, city commercial banks and other listed banks had the lowest non-performing loan ratio of 0.83% on average, 0.31%, 0.37% and 0.42% lower than that of joint-equity banks, state-owned holding banks and all listed banks, respectively.
Second, the non-performing loan ratio of different types of banks rebounds in varying degrees. City commercial banks and other listed banks have the smallest increase of 0.14%. The number is 0.28% and 0.23% in joint-equity banks and state-owned holding banks respectively.
Third, the generation rate of non-performing loans varies in different types of banks. In 2014, city commercial banks and other listed banks experienced the lowest rate of 0.43% on average, which is 0.30%, 0.37% and 0.66% lower than that of state-owned holding banks, listed banks and joint-equity banks, respectively.
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