Chinese banks likely hide true levels of bad debt, says state asset manager

A report issued by one of China’s four national asset managers China Orient Asset Management Co. suggests that the country’s banks have likely understated their levels of risky debt, with nonperforming loans (NPLs) set to increase further this year.

For the last five quarters, commercial banks’ NPL ratio has been a steady 1.74%, a figure that has been met with scepticism from external analysts. In 2016, for instance, banking officials told Caixin Global that local governments may have instructed regional banks to underreport bad state so as to satisfy national policy requirements.

Although the NPL ratio at commercial banks may have stayed constant during this period, the gross amount of the debt rose considerably. In the five quarters from Q4 2016, NPLs grew by RMB200 billion, according to the China Banking Regulatory Commission.