Chinese banks’ bad loans rose to the highest level since 2008 in the third quarter as a property slump and an economic slowdown boost the odds that soured credit will keep climbing.
Nonperforming loans rose 72.5 billion yuan (US$11.8 billion) from the previous quarter to 766.9 billion yuan, the China Banking Regulatory Commission said in a statement on Saturday. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier.
Weakness in the economy and extra competition for lenders because of financial deregulation may weigh on banks’ profitability.
In signs that the slowdown may be prolonged, factory output expanded at a slower pace last month, and a person with knowledge of Chinese Communist Party talks said leaders had discussed lowering the nation’s growth target for next year.
Bad loans are “likely to rise for the next few quarters as a result of the slowdown in the Chinese economy, but I think the systemic risk should be contained,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp, said before the statement.
Banks’ bad-loan coverage ratio, a measure of reserves for soured credit, fell to 247.2 percent as of Sept. 30 from 262.9 percent in June. Their capital adequacy ratio, a measure of financial strength, increased to 12.93 percent from 12.4 percent three months earlier.
Leaders have discussed lowering next year’s growth target from this year’s 7.5 percent goal, the person said last week.
Industrial & Commercial Bank of China Ltd (中國工商銀行), the world’s largest lender by assets, last month reported its biggest quarterly jump in bad loans since at least 2006.
Stresses in the economy are visible through companies such as Sinosteel Corp (中國中鋼), a state-owned miner and steel trader that in September reported financial difficulties.
China’s GDP will rise 7.4 percent this year, the least since 1990, according to analysts’ median estimate.
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