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[size=1.4em]Sour loans on the books of China’s biggest banks have increased 22% since the start of the year, as slowing economic growth and overcapacity in a number of industries take an increasing toll on the financial sector. As the WSJ’s Dinny McMahon reports:
[size=1.4em]The bad loans remain only a small portion of the overall loan portfolio of China’s four biggest state-owned banks, which dominate lending in the world’s No. 2 economy after the U.S. The banks also remain profitable, though their profit growth continues to pale compared with the double-digit quarterly surges they posted as recently as 2012.
[size=1.4em]Still, the growth in nonperforming loans adds to other signs of weakness in the Chinese economy. They include an ailing property market, where average new home prices are declining and where in some cities developers offer incentives ranging from free appliances to iPhones to new fittings for the house to spur sales. Industrial overcapacity in coal production, steel and textiles is starting to bite, and many small and privately owned firms are struggling to stay afloat, particularly in the manufacturing heartland of the Yangtze and Pearl River deltas.
[size=1.4em]At the end of the third quarter, China’s big four banks— Bank of China plusIndustrial & Commercial Bank of China Ltd. , China Construction Bank Corp. and Agricultural Bank of China Ltd. —had 415 billion yuan ($67.5 billion) of nonperforming loans on their books. That is up 22% from the end of 2013 and is 8% higher than when they last reported data at the end of June.
[size=1.4em]They averaged a nonperforming loan ratio of only 1.14% at the end of September, up from 1.03% at the end of 2013.
[size=1.4em]The banks also decreased the provisions they set aside against bad loans, suggesting they have been writing down bad debt. The banks didn’t disclose details of any write-downs in the third quarter; Chinese banks generally disclose more details in their half-year and full-year results. ICBC posted the sharpest decline in such provisions; they fell more than 70 percentage points to 216.6%.
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