Bad debts strike the Chinese banking industry

By | September 9, 2013

Bad debts strike the Chinese banking industry

China’s banking sector has never been so short of money in recent years. With decline in the quality of assets, there is increasing pressure on banks’ capital, the move of refinancing in the industry seems imminent.

Indeed the Chinese banks’ current embarrassing situation is also caused by “money.” During the financial crisis, China launched a 4 trillion yuan stimulus package as a tonic to prevent rapid economic downturn, and this policy to some certain extent contributed to the bank’s lending desires. Now with China’s economy slowdown, the side effects begin to be felt.

The 2013 mid-year reports of major banks showed that 16 listed banks’ non-performing loans reached 440 billion yuan, an increase of nearly 40 billion yuan compared with the end of 2012. For these 16 banks, without exception all witnessed increase in the non-performing loans. Except the four main banks, the remaining 12 banks’ non-performing loan ratio and non-performing loans are all increasing since the end of 2011. Among them, China CITIC Bank six-month NPL ratio increased by more than 0.1 percentage points; Industrial Bank’s non-performing loans during the first half of 2013 witnessed a growth of 44.20% over the end of 2012.

The emergence of bad debts, the decline in asset quality both put the banks’ capital adequacy ratio under tremendous pressure. What makes it worse is the introduction of new bank capital management standard, the Basel III standard, which is to be put into effect by the end of 2018. And the required capital adequacy ratio of the banking sector will be increased year by year.

Now there are two methods to most banks, either refinance or reduce the leverage. And some banks have made a choice. On September 4, China Merchants Bank completed the stock dilution in A-share market, and is about to launch the stocks issuance in the H-share market; Ping An Bank’s long-planned 20 billion yuan stock dilution will also be implemented soon. According to Tencent Finance, it is understood that other banks are also planning similar moves.

Fortunately, the four main banks still have superior asset quality compared to other banks and thus will not release too much pressure to the market in the short-term. But with the current financial reform, emergence of the private banks and the rise of internet banking, traditional banks will inevitably be challenged. The Autumn has arrived, the winter shall not be far away. Now who may survive?

Source: Tencent Finance

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