Quality lenders cut allowance to NPLs, release more credit resources

Among 42 A-share listed Chinese banks, 10 lenders cut the allowance for loan impairment losses to nonperforming loans in the first quarter, as China urged large and quality banks to release funds to step up support for the real economy.

The China Banking and Insurance Regulatory Commission (CBIRC) said at a recent meeting that the regulator encourages large banks whose allowance for loan impairment losses to NPLs remains high and other quality listed banks to reduce the figure in an orderly manner to release more credit resources.

This move is expected to help banks improve credit issuance capacity. The regulator will guide financial institutions to ramp up support for the real economy and promote a steady recovery from COVID-19, said Zhou Maohua, an analyst at China Everbright Bank.

Among 42 A-share listed banks that have announced their financial results for the first quarter, China Merchants Bank Co Ltd, a national joint-stock commercial lender based in Shenzhen, Guangdong province, saw the largest decline in the allowance to NPLs from the end of last year－by 21.19 percentage points－to 462.68 percent as of March 31. It was followed by Bank of Guiyang Co Ltd, a city commercial bank headquartered in Guiyang, Guizhou province, which recorded a drop of 10.78 percentage points to 260.25 percent.

During the same period, Postal Savings Bank of China Co Ltd, a large State-owned commercial lender, cut the allowance to NPLs by 5.03 percentage points to 413.58 percent. China Minsheng Banking Corp Ltd, another national joint-stock commercial bank, lowered the figure by 2.19 percentage points to 143.11 percent.

At the end of the fourth quarter of last year, the allowance to NPLs of China's large State-owned commercial banks and national joint-stock commercial lenders was 239.22 percent and 206.31 percent, respectively, according to the CBIRC. The figures were much higher than the regulatory requirement, which was 120 to 150 percent.

"Currently, the allowance to NPLs at major large commercial banks in China remains relatively high, so there is room for cuts," said Yuan Xiaohui, a researcher with the BOC Research Institute.

"The recent call of the government is mainly targeting large banks to encourage them to play a leading role in strengthening financial support for micro and small enterprises as well as weak links in the economy, such as the industries hit hard by COVID-19," Yuan said.

Reducing the allowance to NPLs in an orderly manner is conducive for banks to unleash profits, increase credit issuance appropriately, and thus maintain steadier profit growth and a strong ability to replenish capital, she said.

The latest policy on the allowance to NPLs aims to encourage financial institutions to sacrifice part of their profits to support the real economy and accelerate credit expansion, said a report issued by Soochow Securities.

Based on the banking sector's statistics last year, the securities company headquartered in Suzhou, Jiangsu province, estimated that if large State-owned commercial lenders and national joint-stock commercial banks lower the allowance to NPLs to 200 percent, 470 billion yuan ($69.48 billion) of allowance for loan impairment losses will be available. The amount is likely to reach 960 billion yuan if these banks further cut the allowance to NPLs to 170 percent.

If 70 percent of the money released will be included in bank capital, the amount of replenished capital of these banks could be around 330 billion to 670 billion yuan, said a report issued by Soochow Securities.

China will provide greater relief to micro, small and medium-sized enterprises and self-employed households, to promote employment stability by keeping the operations of market entities stable, according to the decision made at the State Council executive meeting chaired by Premier Li Keqiang on May 5.

Large State-owned banks will add 1.6 trillion yuan of inclusive loans for micro and small enterprises this year. The banks should renew loans, extend and adjust repayment arrangements, and waive default interest for MSMEs and self-employed households as appropriate, and their credit records will not be affected, it was decided at the meeting.