China banks' sour loans surge most since 2004 as economy slumps

[SHANGHAI] Chinese banks' bad loans surged by the most in more than a decade in the first quarter as defaults spread from small private firms to state-owned entities amid a property-market slump and an economic slowdown.

Nonperforming loans climbed 140 billion yuan (S$31 billion) from the beginning of the year to 982.5 billion as of March 31, the China Banking Regulatory Commission said in a statement on Friday. The increase is the biggest since quarterly data became available in 2004 and equivalent to about 56 per cent of new bad loans in the whole of 2014.

A slowing Chinese economy and rising corporate defaults add to concerns that banks' profitability may slump this year as they build buffers to cover loan losses. Industrial & Commercial Bank of China Ltd and its four largest peers last month reported first-quarter profit growth of less than 2 per cent, down from an average of about 10 per cent for the same period in 2014.

Chinese banks' bad-loan ratio rose 14 basis points from the end of last year to 1.39 per cent as of March 31, the highest in five years, according to the CBRC. The bad-loan coverage ratio, a measure of provisions for soured credit, fell to 212 per cent, the lowest since September 2010.

China's economy is forecast to expand this year at the slowest pace since 1990 and Standard & Poor's warned on April 15 that 2015 could be a tougher year for banks as more loans to mid-sized and large manufacturers go bad. In a sign of stress, Baoding Tianwei Group Co was the first state-owned company in China to default on an onshore bond, failing to pay 85.5 million yuan of interest.

The combined profit of Chinese banks amounted to 443.6 billion yuan in the first quarter, up 3.7 per cent from the same period a year earlier, CBRC data showed.

BLOOMBERG