NPL ratio for commercial banks stays flat in 2nd quarter

While the nonperforming loans outstanding for Chinese commercial banks continued to rise, the NPL ratio remained flat in the second quarter, said the China Banking Regulatory Commission.

The NPL balance for commercial banks increased 3.25 percent from the previous quarter to 1.44 trillion yuan ($216 billion) in the second quarter. The NPL ratio stood at 1.75 percent, the same as the first quarter, according to latest statistics released by the CBRC on Wednesday.

Although the NPL ratio of large commercial banks dropped 3 basis points to 1.69 percent during the same period, the NPL ratios of other types of banks were all on the rise. Among all commercial lenders, rural commercial banks recorded the highest NPL ratio of 2.62 percent, up 6 basis points from the previous quarter.

Separate from NPLs, the balance of special mention loans, potentially weak loans presenting an unwarranted credit risk, rose 3.9 percent to 3.32 trillion yuan.

Guo Tianyong, head of the China Banking Research Center at the Central University of Finance and Economics, said: "The NPLs of the Chinese banking sector will continue to grow, and the rise of special mention loans, or lending potentially at risk of becoming non-performing, will increase the pressure on banks. Therefore, commercial banks will be still under pressure to deal with NPL growth in the second half of this year."

In spite of the pressure, the CBRC said the asset quality of commercial banks is generally controllable and the provisions for potential credit losses are sufficient.

As of the end of the second quarter, the loan loss provision balance of commercial banks rose 3.8 percent from the previous quarter to 2.53 trillion yuan. The provision coverage ratio increased 93 basis points to 175.96 percent.

Amid the rise of NPLs, the profit growth of the Chinese banking sector continued to slow down. By the end of the second quarter, commercial banks posted a net profit totaling 899.1 billion yuan, increasing 3.17 percent over the same period in 2015, slower than a year-on-year growth of 6.32 percent in the first quarter.

The slowdown followed a similar trend at China's largest commercial banks last year, partly due to interest rate liberalization, downward economic pressure and structural reforms. All four of the largest commercial banks by assets posted full-year net profit growth of less than 1 percent.

Guo said large commercial banks will keep recording net profit growth of lower than 1 percent this year and some banks may even post negative profit growth.

An EY report found that 16 A-share listed banks posted net profit growth of 2.66 percent in the first quarter, falling 59 basis points from the previous year. The figures meant the net profit growth of listed banks had slowed for five consecutive years.

Steven Xu, partner of EY Financial Services in Greater China, said: "Narrower interest margins and increased provisions resulted in a further slowdown in net profit growth."

jiangxueqing@chinadaily.com.cn