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China’s official bad-loan ratio held at 1.75 percent in the second quarter after almost three years of increases, suggesting some progress as President Xi Jinping’s officials try to defuse risks from the nation’s explosion in credit.
The China Banking Regulatory Commission didn’t give reasons
in Wednesday’s data release. Lenders have stepped up efforts to clean up nonperforming debt and profits have improved in some struggling industries.
“Though it’s still too early to say the tide has turned, we see clear signs of improvement in new bad-loan formation as companies in industries with overcapacity are doing a bit better,†said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co.
The 1.75 number contrasted with BMI Research, part of Fitch Group, saying on Wednesday that “highly understated†official numbers mask the potential for a ratio at 20 percent, $1.9 trillion of losses, and the need for central bank money-printing to recapitalize banks in coming years.
Disposing of bad loans by
sales or write-offs reduces the amount of provisions that a bank is required to hold for future nonperforming credit. That, in turn, can help a lender to report a stronger profit.
The latest numbers showed a strengthening of the industry’s provisioning ratio — which stood at 176 percent of existing bad debt, versus 175 percent in March. The improvement “indicates less pressure on earnings in the second half,†Cao said.