Coverage: weekly note · Information to 3 June 2024
TGB Premium Intelligence — Open Access
This report was originally available exclusively to TGB Premium subscribers. It is now part of our open research archive.
TGB Weekly Research Note · 3 June 2024
China's commercial bank NPL ratio edged down to 1.59% at end-2023, but real estate loans at ICBC, CCB, Bank of China and ABC carried NPL ratios of 5.37% to 5.64%, and developers received more than RMB1 trillion of M&A loans and extensions in 2023.
The desk view
China's commercial bank NPL ratio fell 0.02 percentage points to 1.59% in the fourth quarter of 2023 and was unchanged at end-March 2024. Over that quarter commercial bank NPLs rose by RMB141.4 billion. At ICBC, CCB, Bank of China and ABC, real estate NPL ratios ranged from 5.37% to 5.64% at end-2023. NPL ratios on water, environment and public utility lending rose at CCB, Bank of China and ABC. Our view is that property risk is being deferred rather than recognised, and that undisclosed LGFV exposure remains a gap in what the system ratio shows.
A flat ratio built on disposals and loan growth
The National Financial Regulatory Administration (NFRA) reported a commercial bank NPL ratio of 1.59% at end-2023, 0.02 percentage points lower than a quarter earlier, with NPLs broadly unchanged at RMB3.2 trillion. The ratio was again 1.59% at end-March 2024, even though NPLs rose by RMB141.4 billion to RMB3.4 trillion over the quarter. Loan growth, rather than a fall in problem credit, kept the ratio steady.
The banking sector disposed of RMB3 trillion of non-performing assets in 2023, yet banking-institution NPLs still rose by RMB149.5 billion over the year to RMB3.95 trillion, on preliminary figures. Loans overdue by more than 90 days were equal to 84.2% of commercial bank NPLs at end-2023, a level the NFRA described as relatively low. That implies some loans are classified as non-performing before they reach 90 days of arrears.
Buffers thinned in the fourth quarter: loan-loss reserves fell by RMB86.4 billion and coverage slipped 2.74 percentage points to 205.14%. Coverage was 204.54% at end-March 2024. Special-mention loans, the watch category just short of NPL status, rose from RMB4.5 trillion at end-2023 to RMB4.6 trillion at end-March 2024.
The improvement was also uneven. Rural commercial banks' NPL ratio rose from 3.18% to 3.34% in the fourth quarter as their NPLs climbed from RMB812.4 billion to RMB862.3 billion, while city commercial banks' NPLs fell from RMB541.9 billion to RMB501.7 billion.
Commercial bank NPL ratio by bank type, %
| Bank type | Q3 2023 | Q4 2023 | Q1 2024 |
|---|---|---|---|
| Large commercial banks | 1.27 | 1.26 | 1.25 |
| Joint-stock banks | 1.30 | 1.26 | 1.25 |
| City commercial banks | 1.91 | 1.75 | 1.78 |
| Rural commercial banks | 3.18 | 3.34 | 3.34 |
Source: National Financial Regulatory Administration, 2023年商业银行主要指标分机构类情况表（季度） (Commercial bank main indicators by institution type, quarterly, 2023), 23 February 2024; National Financial Regulatory Administration, 2024年商业银行主要指标分机构类情况表（季度） (Commercial bank main indicators by institution type, quarterly, 2024), 1 June 2024.
Property stress sits in developer books
At ICBC, CCB, Bank of China and ABC, real estate loan NPL ratios at end-2023 ranged from 5.37% to 5.64%, about four times their group NPL ratios of 1.27% to 1.37%. The direction differed: Bank of China's ratio fell from 7.23% and ICBC's from 6.14%, but CCB's rose from 4.36% and ABC's was little changed from 5.48%. Mortgage quality also weakened: ICBC's residential mortgage NPL ratio rose from 0.39% to 0.44% and CCB's from 0.37% to 0.42%.
The NFRA said banks provided more than RMB1 trillion of M&A loans and extensions of existing loans to real estate companies in 2023. The notice of 5 January 2024 setting up city-level financing coordination mechanisms tells banks not to cut loans to projects that are temporarily in difficulty but broadly cash-flow balanced, and to support them through extensions, revised repayment schedules and new lending. Extensions of this kind can keep loans current that might otherwise migrate to non-performing status; they defer recognition rather than remove the risk.
Real estate and public-utility loan NPL ratios at ICBC, CCB, Bank of China and ABC, %
| Bank | Real estate, end-2022 | Real estate, end-2023 | Public utility, end-2023 | Group, end-2023 |
|---|---|---|---|---|
| ICBC (domestic branches) | 6.14 | 5.37 | 1.19 | 1.36 |
| CCB | 4.36 | 5.64 | 1.35 | 1.37 |
| Bank of China (mainland) | 7.23 | 5.51 | 1.09 | 1.27 |
| ABC | 5.48 | 5.42 | 1.99 | 1.33 |
Source: Industrial and Commercial Bank of China, 2023 Annual Results Announcement, 27 March 2024; China Construction Bank, Announcement of Annual Results 2023, 28 March 2024; Bank of China, 2023 Annual Results Announcement, 28 March 2024; Agricultural Bank of China, 2023 Annual Results Announcement, 28 March 2024.
LGFV exposure is visible only indirectly
No release reviewed here breaks out bank loans to local government financing vehicles (LGFVs), so the evidence is indirect. The State Council's October 2023 report on financial work said banks were being guided to negotiate with LGFVs in key regions on existing debt, that new LGFV debt would be strictly controlled and that statistical monitoring of LGFV debt was being improved. In January 2024 the NFRA said it would cooperate in resolving existing local government debt risks and strictly control new debt.
Bank industry tables offer only a partial proxy: lending to water, environment and public utility management. The sector's NPL ratio rose at CCB from 0.93% to 1.35%, at Bank of China from 0.54% to 1.09% and at ABC from 1.07% to 1.99%, where sector NPLs more than doubled to RMB22.7 billion; at ICBC it fell from 1.58% to 1.19%.
What the headline ratio does not show
The 1.59% ratio held steady alongside RMB3 trillion of disposals in 2023, loan growth that absorbed a RMB141.4 billion rise in NPLs in early 2024, and over RMB1 trillion of M&A loans and extensions to developers. For investors and supervisors, the more useful signals are special-mention loans, provision coverage and sector tables in bank results, rather than the system ratio.
What to watch
- Quarterly from 2024: provincial housing departments and NFRA local offices report coordination-mechanism progress to the Ministry of Housing and Urban-Rural Development.
Primary sources: National Financial Regulatory Administration, 2023年四季度银行业保险业主要监管指标数据情况 (Main supervisory indicators of the banking and insurance sectors, Q4 2023), 23 February 2024; Industrial and Commercial Bank of China, 2023 Annual Results Announcement, 27 March 2024; China Construction Bank, Announcement of Annual Results 2023, 28 March 2024; Bank of China, 2023 Annual Results Announcement, 28 March 2024; Agricultural Bank of China, 2023 Annual Results Announcement, 28 March 2024; State Council Information Office, 国务院新闻办就金融服务经济社会高质量发展举行发布会 (SCIO press conference with the National Financial Regulatory Administration, 25 January 2024), 26 January 2024; National Financial Regulatory Administration, 2024年一季度银行业保险业主要监管指标数据情况 (Main supervisory indicators of the banking and insurance sectors, Q1 2024), 1 June 2024; National Financial Regulatory Administration, 2023年商业银行主要指标分机构类情况表（季度） (Commercial bank main indicators by institution type, quarterly, 2023), 23 February 2024; National Financial Regulatory Administration, 2024年商业银行主要指标分机构类情况表（季度） (Commercial bank main indicators by institution type, quarterly, 2024), 1 June 2024; Ministry of Housing and Urban-Rural Development and National Financial Regulatory Administration, 关于建立城市房地产融资协调机制的通知 (建房〔2024〕2号) (Notice on establishing urban real estate financing coordination mechanisms), 5 January 2024; State Council (report to the NPC Standing Committee), 国务院关于金融工作情况的报告 (State Council report on financial work), 21 October 2023.