China’s banks have a nifty trick for stopping overdue loans from taking over their books.
They’re just not writing them down.
Government filings show that loans to borrowers who’ve missed a payment are growing three times as fast as non-performing loans, according to Shu Zhang and Matthew Miller at Reuters.
Some of these loans are still sitting on bank balance sheets at full value, even though they have been delinquent for more than 90 days. That is the standard criteria for classifying loans as non-performing.
At 18 listed Chinese banks, overdue loans that had not been written down jumped 57 per cent to 645 billion yuan ($101 billion) in the first half of this year from the end of 2014, while NPLs increased 17 per cent to 692 billion yuan, a UBS analysis of Chinese banks’ balance sheet data show.
Banks are required to hold more cash on hand as their non-performing loans increase. That’s a more onerous burden for small- and mid-tier banks, and analysts say those are the firms that are starting to feel the strain.
A lot of the overdue loans are to companies, according to Reuters. That’s a huge deal, since one of the most dangerous challenges China’s leaders are facing right now — in the midst of the worst economic slowdown in decades — is the declining profitability of debt-laden corporations.
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