China's banks hit by bad loans despite 1.5t yuan relief

New York

BAD debt at Chinese banks climbed in the first quarter, even as lenders deferred payments on and rolled over a combined 1.5 trillion yuan (S$302 billion) in loans after the coronavirus outbreak brought the world's second-largest economy to a standstill.

After allowing banks to take a more lenient approach on how they classify bad debt, regulators in Beijing on Wednesday revealed that the industry's non-performing loan (NPL) ratio nudged up just 0.06 percentage point to 2.04 per cent at the end of March.

The increase was held at bay as lenders agreed to let small businesses defer payments on 880 billion yuan in debt and to roll over another 576.8 billion yuan, said the China Banking and Insurance Regulatory Commission (CBIRC).

"The virus has barely made any impact on banks' asset quality in the first quarter, thanks to the policy on delaying loan payments," said Wang Jian, an analyst at Guosen Securities. "We will see a more significant increase in the second quarter."

Chinese banks, led by Industrial & Commerce Bank of China, are bracing themselves 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 that 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.

The government is also pushing banks to advance more credit to bail out small businesses, among the hardest hit by the lockdown.

The industry NPL ratio will continue to climb in the second quarter, but overall risks are under control, according to Xiao Yuanqi, chief risk officer at CBIRC. Meanwhile, the regulator said it has drafted plans to restructure some small and medium-sized banks, mostly with market-oriented measures. At least three banks were bailed out or rescued last year to the tune of at least US$18 billion.

About 7.1 trillion yuan of new loans were handed out in the first three months of the year, up by more than 20 per cent from a year earlier, official data shows.

On Tuesday, the State Council announced plans to lower the bad-loan coverage ratio for small and mid-sized banks by 20 percentage points in phases, unleashing additional credit to support small and micro-sized businesses.

The nation's insurance companies are also under stress. Growth in insurance premiums plunged more than 13 percentage points in the quarter, rising just 2.3 per cent from a year earlier.

Credit insurance claims jumped 50 per cent, said the CBIRC. BLOOMBERG