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Chinese banks’ bad loan ratio hits six-year high

China’s commercial banks posted an average non-performing loan (NPL) ratio of 1.59 per cent as of the end of September, the highest since the 2009 global financial crisis, an official at the country’s banking regulator said yesterday.

The provision coverage ratio for Chinese commercial lenders also dropped to a six-year-low of 167.7 per cent at the end of September, compared with 247.15 per cent a year earlier, said Liao Yuanyuan, deputy head of policy research bureau at the China Banking Regulatory Commission (CBRC).

Chinese lenders are struggling with mounting soured debts as growth in the world’s second-biggest economy continues to slow. Bank profits have been squeezed further by six interest rate cuts over the last year and the ongoing liberalisation of interest rates.

Industrial and Commercial Bank of China Ltd (ICBC), the country’s biggest lender by assets, booked an NPL ratio of 1.44 per cent at the end of September, from 1.4 per cent at the end of June.

China’s other big state-owned lenders also reported higher NPL ratios. “The regulator has anticipated the current level and trend of NPLs,” Liao of the CBRC said at a press conference.

“It’s reasonable and within our expectation,” she added.

China’s biggest banks, including ICBC, are seeking to loosen the regulatory requirement on provisions. The CBRC’s current provision requirement of minimum 150 per cent is “relatively high compared with international standards”, said an ICBC executive last week on an earnings call with analysts.

ICBC’s provision coverage ratio has dropped to 157.63 per cent, nearing the CBRC’s minimum requirement. At the end of 2014, the bank booked a provision coverage ratio of 206.9 per cent.

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