Trillions in bad loans straining China’s banking system, regulator warns
Hidden bad loans threaten to wipe out bank profits and erode capital bases, especially at China’s small and regional banks that have come under fire for years of undisciplined balance sheet expansion and fraud.
China’s top banking regulatory official said on Thursday that the country’s banks have to deal with 3.4 trillion yuan (US$489.5 billion) worth of non-performing loans in 2020 – flagging a big risk for the banking system in the world’s second-largest economy.
The total marks a hefty increase from 2.3 trillion yuan in 2019, and the value of bad loans could be even higher in 2021.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said in an interview with the official Xinhua News Agency that the increase in non-performing loans (NPLs) – loans in default or close to default – will put huge pressure on the country’s banks, especially small and regional ones.