China’s National Audit Office has sounded the alarm on a surge of bad debts at small banks around the country, raising the question of whether Beijing will continue to bail out struggling lenders or eventually allow some to go bankrupt, said the Financial Times.
The central auditing authority said that some banks in Henan province in central China had recorded 40% of their loan books as bad debt by the end of 2018, the first official disclosure in decades of such high rates of toxic assets.
Of the 42 banks with non-performing loan (NPL) ratios, over half “crossed the warning line” of 5%, 12 had rates above 20% and “a few” exceeded 40%, according to the audit authority’s report.
Many large banks have brought NPLs under control, but city commercial banks and rural financial institutions, which make up more than a quarter of China’s total banking assets, have continued to record higher rates of soured loans as economic growth cools.