In an interesting turn of events, first-quarter reports show that the ratio of nonperforming loans (NPLs) for China’s biggest banks has remained largely stable despite the havoc created by the coronavirus pandemic. According to multiple sources, including China Daily, the country’s top state-owned banks don’t seem to be shaken by the pandemic. At least, not as much as you’d expect.
Considering that China’s GDP plunged by 6.8% in the first quarter, any free market would have resulted in the banks feeling the heat at some point. With businesses shut and workers losing their jobs in numbers, any lender would have felt the consequences.
But, that’s not the case in China. The Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China, and the China Construction Bank have all posted very positive NPL figures as the country comes out of the recent lockdowns.
One of the main reasons for the relatively healthy nonperforming loan (NPL) figures among the four banks, analysts say, is the state-ownership. Being government-owned, these banks hog up the best state-owned clients. The majority of these clients are well-stocked with collateral and insulated from default.
In total, the four banks boast a collective 72 trillion yuan deposit pool, equivalent to approximately $10.2 trillion. That’s nearly 40% of China’s total. It allows the banks to make easy money lending to smaller financial institutions.
It goes a long way to explain why at a time when even the world’s most established financial institutions are facing their worst crises in decades, the Chinese state-owned banks are not worried. At HSBC, one of the biggest banks in the world, for instance, profits fell 48% in the first quarter. But, on the other side of the world, China Construction Bank was making a healthy 5% profit, with its NPL ratio stable at a modest 1.4%.
Small Business Also Shielded From Economic Impact of Covid-19
Another possible explanation for the stable NPL ratios in the country is the shielding of small businesses from the turmoil in the early parts of the year.
China has allowed all qualified micro and small businesses with principle or interest due up to June 30, 2020, to delay such payment until the end of quarter two. Regulators are also under instruction not to downgrade any loans with missed payments. Alternatively, lenders can report any delinquencies to the country’s centralized credit-scoring system.
It’s something from which, perhaps, other countries can learn. According to analysts, the plan is working and will delay shocks from the pandemic to the asset quality of banks, at least in the short term.
Michael Hollis is a Detroit native who now lives in Los Angeles. He is an account executive who has helped hundreds of business owners with their ACH business loans solutions. He’s experimented with various occupations: computer programming, dog-training, scientificating… But his favorite job is the one he’s now doing full time — providing business funding for hard working business owners across the country.