Growing financial risk in China is expected to create 3.4 trillion yuan in bad loans for disposal in 2020, a nearly 50 percent year-on-year surge.
«The sector will further step up bad loan disposals in 2021, as some of the problems will be exposed next year due to delayed loan payments,» said Guo Shuqing, China Banking and Insurance Regulatory Commission (CBIRC) chairman, in a «Xinhua» report.
The $3.4 trillion yuan ($490 billion) bad loan disposal forecast would mark a 48 percent increase compared to the 2.3 trillion yuan ($330 billion) last year.
Guo, also the Communist Party chief of China’s central bank, warned of increasing headwinds in the current environment and «relatively big» upward pressure for bad loans, urging banks to boost loan provisions and replenish capital.
Profits Down a Quarter
Concurrently, profitability sunk a quarter for Chinese banks which collectively posted net profits of 426.7 billion yuan ($61.4 billion). Bad loans have risen six quarters in a row and thus far total 2.7 trillion yuan ($390 billion) resulting in a non-performing ratio of 1.94 percent – a 10-year high.
To worsen matters for mainland banks, top Beijing officials are pressuring the industry to «sacrifice profits» totaling 1.5 trillion yuan ($220 billion) – 75 percent of 2019’s full-year net profits – to reduce corporate borrower costs in the midst of a challenging economic environment and an ongoing pandemic.
