NPL Story Relived – Rising bad debts – particularly in China – were a key theme of the previous quarter’s (3QCY14) results in China…. And it looks like it will be the same for 4QCY14. Although 4Q14 results for the major Chinese banks are still about a month away, the numbers released by smaller banks highlight further rises in NPLs and credit costs. NPL formation for Chinese banks (Chg in Qt’ly NPLs + Writeoffs + Disposals)/Avg Loans) had already picked up to 86bps annualised in 3Q14, up from 65bps in 1H14.
Certainly going the wrong way and we can expect it to get a lot worse before it gets better as structural change takes its course.
For perspective, however, recall that at the turn of the millennium, Chinese banks had an eye-watering NPL rate of 40% so today’s sub-1% isn’t a reason to shred your bodice.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
