Bad loans on the rise

Commercial banks’ non-performing loans (NPL) rose by RMB183bn in Q2, the biggest increase in over a decade. On paper, bad loans now make up just under 2% of all loans, the highest ratio since the Global Financial Crisis. The official NPL ratio still looks implausibly low but the latest rise does suggest, alongside a recent jump in corporate bond defaults, that slowing growth is putting strain on corporate balance sheets. What’s more, the NPL ratio would have risen by a wider margin if banks hadn’t stepped up their efforts to offload their bad loans. NPL securitisation has led to a jump in banks’ issuance of asset-backed securities recently and new data made available by the People’s Bank this week show that banks have written-off RMB1.2tn worth of NPLs since the start of 2017, more than 1.1% of current outstanding loans.