China’s banking industry has disposed of 8.8 trillion yuan of non-performing loans in the past three years
China Banking Regulatory Commission Chairman Guo Shuqing revealed at a press conference on March 2 that the banking sector has disposed of 8.8 trillion yuan of non-performing loans in the past three years, a scale that exceeds the sum of the previous 12 years. Under the influence of COVID19 Epidemic, the economy keeps declining while the financial system is becoming more and more risky.
On March 2, China’s State Council Information Office (State Council Information Office) held a press conference in which Guo Shuqing, Chairman of the China Banking and Insurance Regulatory Commission (CBIRC), introduced the development of the banking and insurance sectors. Among other things, in response to the recent phenomenon of non-performing loans in major banks to varying degrees, Guo Shuqing said at the conference that from 2017 to 2020, China has disposed of a total of 8.8 trillion yuan (RMB, the same below) of non-performing loans, more than the sum of the previous 12 years.
Guo asserted that in 2021, the banking sector will dispose of non-performing loans even more vigorously than in 2020.
Guo Shuqing said China has maintained an annual loan growth rate of about 12 percent. But last year, affected by the (COVID19) epidemic, the loan growth rate was faster and the volume was huge, though it still did not exceed 13%.
Why do non-performing loans show an upward trend? Guo Shuqing explained that after the (COVID19) epidemic, the production and operation activities of some enterprises are certainly in an abnormal state, repayment will be difficult, and even a significant portion of enterprises may face bankruptcy restructuring or bankruptcy liquidation, and even less able to repay the loan. Therefore, the rise in non-performing loans is an inevitable trend. “In fact, in 2020 we have started to increase the disposal of non-performing loans, the annual disposal of non-performing assets 3.02 trillion.”
Guo Shuqing said bluntly that there is not yet a clear indicator, the CBRC is also communicating with the banks. But at the same Time, the non-performing loans that need to be disposed of in 2021 will grow, and even continue into 2022, because some loans have longer terms.
The Chinese financial regulator’s standard for identifying non-performing loans is that loans that are 90 days past due and not repaid are to be classified as non-performing loans.
According to international financial industry standards and Chinese financial regulators’ regulatory requirements for the banking sector, Chinese banks will urgently need to inject large sums of money as reserves for non-performing loans to prevent triggering systemic financial risks, and the difficulty in raising funds will add to the plight of the banking sector, whose profits have already plummeted during the COVID19 outbreak.
The massive release of currency by China’s central bank is also a cause of high financial risk.
On Jan. 26, Ma Jun, a member of the Monetary Policy Committee of China’s central bank, said at a seminar hosted by the China Wealth Management 50 Forum (CWM50) that the leverage ratio of China’s economy is rising very fast, with China’s macro leverage ratio rising 25 percentage points in the first three quarters of 2020, the highest rise since 2009, according to several media reports, including the 21st Century Business Herald. The sharp rise in leverage will naturally lead to future financial risks.
Ma Jun said that local governments are used to cascading for their own performance, setting local GDP targets at a very high level. This relies on borrowing money to invest to boost GDP than other methods of course easier, but therefore also increased the financial risk of hidden debt. It is generally believed that the initial period of high debt may create a “miracle” of economic prosperity, but in the long run, the false economic prosperity will certainly lead to a bubble economy.
Ma Jun mentioned that some areas of the bubble has already appeared. For example, in 2020, several major stock market indices in China have risen sharply, close to 30%, and it is unlikely that such a bull market has nothing to do with the currency when the economic growth rate has dropped sharply. In addition, housing prices in Shanghai and Shenzhen have risen considerably, and these are related to changes in liquidity and leverage.
On January 12, China’s central bank released financial data and social financing (social finance) statistics for 2020, showing that RMB loans increased by 19.63 trillion yuan for the year, up by 2.82 trillion yuan year-on-year; the cumulative increase in social financing scale was 34.86 trillion yuan, 9.19 trillion yuan more than the previous year.
The breakdown of the data, residential household loans increased by 82.4 billion yuan, including short-term loans and medium- and long-term loans increased by 49.3 billion and 43.2 billion, respectively, reflecting the spread of the COVID19 epidemic on the one hand, the people’s willingness to consume weakened; on the other hand, it also reflects the tightening of real estate regulation dragged down the people’s willingness to buy homes, the subsequent real estate sales and investment or will be under pressure.
Guo Shuqing said on March 2 that the bubble in China’s real estate sector is still large and is the biggest “gray rhinoceros” in the financial system.
Guo Shuqing warned that “many people buy houses not for living, but for investment and speculation, which is very dangerous.”
He said that individuals holding too much property, if the market comes down in the future, then there will be a great loss of personal property, such as loans can not be repaid, the bank can not collect the loan, the principal and interest, then the economic Life of a great disruption.
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