Credit rating agencies have downgraded at least five smaller Chinese banks since the start of 2018, according to Bloomberg, as Beijing’s financial deleveraging drive takes a toll on institutions’ balance sheets.
The downgrades are mainly due to a spike in the number of overdue and non-performing loans among the smaller Chinese players, with one lender—Guiyang Rural Commercial Bank—seeing its bad debt skyrocket nearly tenfold over the last two years, according to Bloomberg.
In another case, Henan-based Xiuwu Rural Commercial Bank posted a 4.5% increase in nonperforming loans in 2017 from the year before, bringing the total to 20.7%, reports Caixin.
The increase in bad debt is being driven by China’s tightening of conditions in the financial sector. Smaller lenders are seeing borrowing costs rise and they are being forced to report more bad debt because regulators have widened the definition of a non-performing loan.