Friday, February 15, 2008

Reader dylan left the following article as a comment, but I thought its importance merit its posting. When I saw this a few days ago, my reaction was "ah, here we go again." According to people involved in the distressed asset business, much more is to come. Remember, the Ernst & Young report from a year and half ago, which was retracted after heavy government pressure, stated that much of the special mention loans in China are in fact NPLs. If even half of that is true, there is a large pool of NPLs sitting out there. Last year, things kept humming along because banks could provide new loans when old loans came due, thus avoiding NPL designations. However, with macro-economic retrenchment and loan ceilings, there is much less room to do so this year. Worst case: this could create a spiral where old NPLs come to light at the same time that new NPLs are created by falling real estate and stock prices....

Again, thank you dylan for pointing out this important trend.

BEIJING, Feb. 15 (Xinhua) -- Non-performing loans (NPL) among the five major Chinese state-owned banks hit 1.11 trillion yuan (about 155.3 billion U.S. dollars) in 2007, up 35.13 billion yuan from the third quarter.

For the five banks, the NPL ratio hit 8.05 percent, 0.22 percentage points higher than the third quarter, the China Banking Regulatory Commission (CBRC) said here on Friday.

The five lenders refer to the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of Communications.

Analysts explained the NPL rebound in the five banks might result from the sub-prime loan crisis in the United States, especially for the Bank of China and the Industrial and Commercial Bank of China.

The crisis has had little effect on other Chinese banks who have little overseas business.

With outstanding NPL standing at 86.04 billion yuan, 12 Chinese joint-stock commercial banks reported a 2.15 percent ratio of NPL last year, a drop of 0.26 percentage points from the third quarter, the CBRC said.

The NPL ratio of city commercial banks declined to 3.04 percent in 2007 from 3.67 percent in the third quarter.

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