Overdue loans pile pressure on lenders

Chinese banks' asset quality came under increased pressure in the first half as overdue loans rapidly piled up, according to a report released on Thursday by PricewaterhouseCoopers International Ltd.

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China's top 10 lenders' outstanding overdue loans, an indicator of future non-performing loans, or NPLs, reached 489 billion yuan ($77.6 billion) by the end of June, up 112.9 billion yuan from six months earlier, it said.

"That's much higher than our previous expectation, signaling considerable pressure on banks' asset quality," said Richard Zhu, a financial services partner at PwC.

The banks' ratio of overdue loans also increased from 1.06 percent to 1.28 percent.

The 10 listed banks include the five largest State-owned lenders - the Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd, Agricultural Bank of China Ltd, and Bank of Communications Co Ltd. The other five are major joint stock banks - China Merchants Bank Co Ltd, China Citic Bank Corp, Shanghai Pudong Development Bank Co Ltd, Industrial Bank Corp Ltd, and China Minsheng Banking Corp Ltd.

Concerns over deteriorating asset quality are rising. Lenders extended record high new yuan loans last month compared with any previous August as the government seeks financial support for new rounds of investment projects intended to spur economic growth.

Although overdue loans are increasing at a faster pace, it's hard to say how many of such loans will finally turn sour, said Margarita Ho, a partner of PwC China Financial Services.

"It's up to the risk-management experience they (the banks) accumulated, which I think has obviously improved in the past years. What's more, by the year end the increase in such loans may be more moderate, given they have to meet various regulatory requirements at that time," she said.

The non-performing loan ratio among the top 10 banks in the first half declined by 0.02 percentage points blow six months earlier, but the total outstanding NPLs grew by 5.3 billion yuan to 356.7 billion yuan, said the report.

The Yangtze River Delta and western China had the highest level of NPLs in the first half. Bad loans in the Yangtze River Delta surged 21 percent.

Loans to the manufacturing sector accounted for 40 percent of the soured loans, followed by loans to the wholesale and retail sector. NPLs to retailers surged by 34 percent in the first half.

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