Defaults and non-performing loans rise as virus hits Chinese economy
BEIJING (Reuters) – China’s defaults, late payments and bad debts all rose in the first quarter as the coronavirus outbreak triggered unprecedented economic challenges, officials at the regulator said on Wednesday. banks and insurance companies.
The industry’s non-performing loan (NPL) ratio rose in the first quarter to 2.04%, and it will continue to increase at a moderate pace in the second quarter, said Xiao Yuanqi, director of risk at the China Commission of banking and insurance regulation (CBIRC).
“The coronavirus has brought unprecedented shocks to China’s economic and social development,” Huang Hong, vice president of CBIRC, said at a press conference in Beijing on Wednesday.
Xiao said that more than 450 billion yuan of bad debts were settled in the first quarter, up 81 billion yuan from the same period last year.
But the banking sector still retains a “strong capacity” to resist risks, he added.
China’s economy shrank an unprecedented 6.8% in the first quarter, as strict lockdowns and store closings wreak havoc on business activities and consumer spending.
Many analysts believe that Chinese banks’ bad debt levels are much higher than reported.
Huang said the banking industry deferred in principle and interest payments on about 880 billion yuan ($ 124.21 billion) in loans to small and microenterprises, a vulnerable group hit hardest during the crisis, from January 25 to the end of March.
Loans to SMEs experienced particularly rapid growth in the first quarter, with an outstanding amount of 12,550 billion yuan at the end of March, up sharply by 25.93% year-on-year.
Total coronavirus-related new loan issuance in the first quarter amounted to more than 2.5 trillion yuan ($ 352.87 billion), he said.
The economic fallout also weighed on Chinese insurers, as their revenue growth fell from historic levels, while their returns on investment were hampered by volatility in global financial markets, Huang said.
Their insurance premium in the first quarter rose only 2.3% to 1.67 trillion yuan, while insurance payments reached 301.9 billion yuan.
But the liquidity conditions of the sector are stable thanks to the structural changes, which will help to counter the shocks, added Huang.
Cao Yu, vice president of the CBIRC, said the regulator will also step up clarification efforts on problematic small banks, while speeding up reform and consolidation of more than 4,000 Chinese small and medium banks.
“The impact on small and medium-sized banks is also relatively obvious,” he said. “This year you will see that the reform and restructuring of small and medium-sized banks will be more intensive, especially in the area of market-oriented restructuring.”
Officials also reiterated the regulator’s firm stance on financial fraud, illegal real estate funds and customer data leaks. Chinese coffee chain Luckin Coffee’s LK.O the fraudulent financial reports serve as a lesson and the CBIRC will support the severe penalties imposed by the relevant departments, Cao said.
Chinese banks’ exposure to Luckin is low and they have been guided to step up risk monitoring and loan management, he said.
More than 10 foreign and domestic insurers are involved in her insurance claim on directors ‘and officers’ liability (D&O) insurance worth $ 25 million, which she bought before going public to cover costs. for compensation after admitting his sales figures had been fabricated, he said, but Luckin’s claim is still under investigation as the case remains “complex.”
Reporting by Yawen Chen and Se Young Lee; Additional reports from Cheng Leng; Editing by Kim Coghill and Jacqueline Wong