Listed Chinese banks see drop in NPL ratio

Despite exposure to the real estate sector, listed banks in China reversed the rising trend of the overall nonperforming loan ratio by enhancing credit risk control and increasing efforts in write-offs and disposals of nonperforming assets, said a report released by EY on Wednesday.

The listed banks reduced the weighted average NPL ratio to 1.37 percent at the end of 2021 from 1.5 percent at the end of 2020, said EY, a firm providing consulting, assurance, tax and transaction services.

"Both nonperforming loan balance and NPL ratio of the real estate sector are rising, but the overall risk is controllable. Moving forward, to promote the healthy development of the real estate sector with longevity, financial institutions will continue to provide the necessary credit services to the industry in accordance with government policies and its own risk management requirements," said Steven Xu, EY Greater China financial services emerging market leader.

"It is important to note that despite the NPL ratio of the listed banks declining, the risk of its non-credit assets is rising, and the prevention, control and mitigation of credit risk needs to be strengthened in the future," Xu added.

Earlier this year, Moody's Investors Service said in a report that Chinese banks' asset quality remains at risk from the lingering pandemic threat and a slowing economic recovery.

"Loan quality will continue to diverge this year. Regional banks, namely city and rural commercial banks, remain vulnerable to further asset quality deterioration because of their less diversified asset portfolios and higher exposure to weaker borrowers," said Nicholas Zhu, vice-president and senior credit officer at Moody's.

Disposal of bad assets in the banking sector totaled 3.1 trillion yuan ($459.5 billion) in 2021, 2.6 percent more than 2020. The recent slowdown in economic activities suggests that banks are likely to maintain a steady pace of bad debt disposal this year, Zhu said.

To further improve their risk resistance capacity, Chinese listed banks maintained a prudent impairment provision policy. The weighted average loan provision coverage ratio increased to 233.43 percent at the end of 2021, up from 212.44 percent a year earlier, according to EY.

While improving asset quality and strengthening resilience, the listed banks also accelerated the transformation of their wealth management businesses last year, largely completed the remediation of legacy wealth management business and achieved remarkable results in resolving the shadow banking risk.

In 2021, 43 listed banks disclosed the value of net value-based wealth management products (WMPs) in their annual reports, showing a balance of 22.71 trillion yuan. For the 31 banks that disclosed this data in both 2021 and 2020, the aggregate balance of net value-based WMPs increased by 68.07 percent in 2021 from 2020 year-end.

By the end of last year, 19 wealth management subsidiaries of banks had opened, which posted a total net profit of 24.37 billion yuan for 2021, representing an increase of 149.07 percent year-on-year, the EY report said.

"With the formal implementation of the new regulations on asset management, the new wealth management business model will face challenges in customer onboarding, investment research capability, risk management capability and system optimization. How the listed banks will improve core competitiveness and achieve healthy and sustainable growth of the wealth management business under the new market and regulatory environment is critically important," said Frank Jiang, a financial service managing partner at EY.

jiangxueqing@chinadaily.com.cn