China’s top banks have investigated and submitted reports on their non-performing loans after a suggestion from the country’s Banking Regulatory Commission. Non-performing loans happen when someone isn’t making payments on a loan. These often fall into debts that will not be paid back.
“The investigation involved how accurately and truthfully credit issues were put into the five categories for loans issued before end of 2011 by the five banks,” an insider told China’s First Financial Daily. It added that the insider has close ties to top management at one of the Banking Regulatory Commissions.
The focus, it was reported, was on implementing policies and on management and operations. Currently, loan risk analysis by banks in China mainly follows a guidebook called the Loan Risk Classification Guidelines issued by the Banking Regulatory Commission in 1998. The guidebook sets five degrees of loan risks: normal, needs attention, substandard, doubtful, and loss—the last three being categorized as non-performing loans. The new reports submitted by the banks include the total number and value of loans that were incorrectly categorized, previously, said the insider.
The financial organizations involved in this initiative are the “big 4” state-owned banks, including Bank of China, the China Construction Bank, the Agricultural Bank of China, the Bank of Communications, plus the Industrial and Commercial Bank of China—which is the nation’s largest bank by total assets. These five banks currently hold more than 70 percent of all non-performing loans in the national market with a total of nearly 300 billion Yuan ($47,130,000,000) according to a report by the China Banking Regulatory Commission.
This year is becoming the first with with slower credit growth compared to the previous year, since the global financial crisis started in 2008, according to a report by Fitch Ratings published on June 4.
“Broad credit growth began to moderate in the second half of 2011, and this slowdown has accelerated in 2012,” said Charlene Chu, head of Chinese banks’ ratings at Fitch, said in a statement. “Weakening demand for credit as well as resource constraints, from thinning bank liquidity, have been weighing on bank lending.”
At the same time, China’s non-performing loans have been on the rise. The first quarter of 2012 concluded with 438.2 billion yuan—10.3 billion more than the end of last year.
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