Coal sector's woes drive up bad loans

A clerk at an outlet of China Construction Bank Corp in Hai'an, Jiangsu province. Statistics show that the problem of nonperforming loans expanded in 2014 from the Yangtze and Pearl river regions into western China. [Photo/China Daily]

Bad loans jumped in the western region of China last year mainly because of a glut of coal supply that drove prices of the fuel sharply lower, causing mining companies to lose money and in some cases default on their debt.

The results of the four largest State-owned commercial banks by assets show that the problem of nonperforming loans expanded in 2014 from the Yangtze and Pearl river regions into western China.

Agricultural Bank of China Ltd's NPLs in the western region surged to 30.33 billion yuan ($4.89 billion) last year from 19.52 billion yuan a year earlier. Bad loans in western China accounted for 24.3 percent of the bank's total NPLs, and its NPL ratio in that area was 1.68 percent, up 45 basis points.

At Industrial and Commercial Bank of China Ltd, NPLs in the western region stood at 20.7 billion yuan as of Dec 31, up from 11.49 billion yuan. The NPL ratio in western China was 1.04 percent, up 38 bps.

Bank of China Ltd and China Construction Bank Corp reported similar problems.

"The increase of nonperforming loans in western China was mainly caused by the drop of coal prices. Some coal-related companies defaulted last year and several other companies were responsible for a rising amount of bad loans," ICBC said in its annual report.

Lu Yaohua, the vice-chairman of the China National Coal Association, said that coal supply greatly exceeded demand last year, putting mining companies under intense operating pressure.

Core revenue for coal companies nationwide fell 6.7 percent to 3 trillion yuan, with profit down 46.2 percent to 126.85 billion yuan.

Statistics from the association show that companies in the sector in nine provinces lost money overall during the first half of 2014. Among 36 large miners, 20 were in the red and nine barely broke even.

The problem was particularly serious in Shanxi province and the Inner Mongolia autonomous region, where coal companies cut employees' pay or even defaulted on wages.

Zhang Jinliang, executive vice-president of Bank of China, said: "The rise of nonperforming loans has been a problem for Chinese banks in recent years due to slowing growth and ongoing economic restructuring. Bad assets have been concentrated in export-oriented coastal regions and some resource-oriented provinces in central and western China."

Song Xianping, chief risk officer at ABC, said: "The economy will hopefully stabilize this year or next.

"The impact on banks' asset quality will be felt six to nine months later, so bad loans are still controllable although the NPL ratio is likely to increase in 2015."