2015-03-31

Small Depositors to Be Insured Starting May 1

Deposit insurance is being rolled out just in time:

China to Insure Deposits in Move Toward Scrapping Rate Curbs
Deposits and interest up to 500,000 yuan ($81,000) will be fully covered, the State Council said in a statement on its website on Tuesday. Over that level, compensation would be according to the amount available from a bank’s liquidated assets, it said.

SCMP: China’s ICBC bank 2014 profits up 5 per cent, bad debt ratio climbs
Higher-than-expected provisions for bad loans, up by 48 per cent year-on-year, accounted partially for the decline in profit growth, analysts noted.

...The bank lost some control over bad debt. ICBC’s non-performing loan ratio rose to 1.13 per cent last year, from 1.06 at the end of September.

Banks in China see profit growth drop on surging bad loans
Chang said that in the economic transformation process, banks in China will continue to be affected by the rise in both non-performing loan (NPL) ratios and outstanding NPLs. "In the next few years, the banking industry's average NPL ratio will fluctuate at a higher range of 2% to 3%, compared to an average of 1.25% recorded by the industry in 2014," Chang added.

Last year, Agricultural Bank saw its outstanding NPLs reach a high of 37.2 billion yuan (US$6 billion) in 2014, translating into a NPL ratio of 1.54%, up 32 basis points from 2013. The bank, however, opined that its NPL ratio will become more stable this year due mainly to the government stepping up efforts to help enterprises with sustainable operations.

The growing risk exposures of bank assets have much to do with economic conditions, said Sun Deshun, vice president of CITIC Bank. The bank recorded outstanding NPLs of 28.454 billion yuan (US$4.6 billion) in 2014, for a NPL ratio of 1.30%, with massive write-offs for NPLs dragging down its net profit growth.

SCMP: China's biggest banks learn to cope with sluggish growth
Easing has been a doubled-edged sword for the banks. On the one hand, cheaper credit means they will make less money on their loans. Net interest margins stayed strong for most of the banks for last year as a whole but came under pressure in the last three months of the year as the rate cuts were priced into loans.

That pressure should increase as loans reprice this year. The central bank is expected to cut rates by another 25 basis points in the first half of the year.

At the same time, the easy money is good for asset quality - at least in the short run. The cheaper the credit, the easier it will be to refinance loans and keep struggling firms afloat for a while longer. This should help banks control bad debts this year.

The average non-performing loan ratio for commercial banks is 1.29 per cent.

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