Non-performing loans in China’s banks rise 26 pct in September

The non-performing loans in China’s banks rose 26 percent in annual terms to CNY 1.49 trillion (USD 212 billion) as of end of September 2016, according to official figures. This was the highest level seen since the end of March 2005. The non-performing loans ratio rose to 1.76 percent from 1.67 percent one year ago and the highest since September 2009.

Including “special-mention” loans, where future repayments are at risks, it totals to around CNY 5 trillion (USD 736 billion), which is 5.91 percent of total loans. The uptrend once again raises worries regarding sustainability of China’s credit-fuelled growth model, noted Commerzbank in a research note.

This comes amidst top hints that new credit growth is service previous loans rather than going into productive investments, said Commerzbank. However, this cannot continue forever and the financial stresses would build up. The threat is that once the Chinese economy reaches its debt servicing capacity, it might lead towards the risks of deceleration in overall GDP growth and credit. This has led to increased impacts by the authorities of curtail bad debt and curb overall credit growth.