Banks in China Turning Blind Eye to Mounting Overdue Loans

Published By : 18 Nov 2015 | Published By : QYRESEARCH

Some of the banks in China, hit by the troubled borrowing in their weakening economy are failing to identify bad debts in their loan books. Analysts believe that banks have voluntarily become blind to their loans gone sour in order to avoid stumping up capital. 

As per the regulatory filings, the loads that these banks are disbursing to borrowers who in past have missed a payment, are growing way faster than the loans that the bank recognizes as non-performing.

The bank books show a record of this large chunk of overdue loans at their full value. In fact, many of the borrowers have missed their payment for more than 90 days, which is the accepted international criteria for classifying loans as non-performing. 

The prevailing banking scenario in China will only aggravate the economic woes of the nation. As the substandard corporate loans in banks record increases, fuelled by the slowest economic growth in China, it would further flatten the strength of the balance sheet of banks, and hit the overall earnings if loans are written down or declared in default. 

An official at the China Banking Regulatory Commission (CBRC) speaking about the prevailing situation said that NPL has outnumbered overdue loans in the past. He also added that at present overdue loans in Chinese banks are surpassing NPLs. According to recent reports, in as many as 18 listed Chinese banks, the overdue loans that were written down increased by 57% to 645 billion yuan or US$143.4 billion during the first half of 2014, while NPLs registered an increase by only 17% to 692 billion. 

The problem according to the analysts is more widespread than what it may seem. The illustrated that loans that are been overdue for more than three months, the increase has been over 166 per cent starting from the end of 2014 and has reached 149 billion yuan.

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