The precarious health of Chinese banks is gradually coming to light with the steady rise in non-performing assets (NPAs)—loans given by banks which turn unproductive—over the last couple of years. Worse, NPAs are likely to rise further and could touch alarming levels as the dragon nation’s ambitious Belt and Road Initiative (BRI) starts to show cracks within with delays in completion of several projects leading to “huge concerns” over repayment. A few projects under the BRI initiative have even been halted.
A large chunk of the BRI financing has been done through the China’s state-owned banks, including the Industrial & Commercial Bank of China and China Construction Bank—the world’s two largest lenders in terms of market capitalization.
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That apart, as the Chinese economy slows down and export demand dwindles, a portion of corporate and retail loans is also likely to turn unproductive. What is worrying is that most of the retail loans have been given out without any collateral.
While the official NPA figure remains more or less flat with the increase in loans, experts say that the real picture is unclear with limited and ambiguous information inflow, reflecting a painful road ahead. On the one hand, bad loans have increased; on the other, overall credit too has surged, leaving the NPA figure at a not-so-alarming level.
About one fifth of the projects under BRI—ostensibly aimed at boosting trade and investment across Asia, Africa and Europe—have been serious affected, the Economic Times said, quoting Wang Xiaolong, Director-General of the Foreign Ministry's international economic affairs department.
“While China’s lending traditionally comes from the major state-controlled banks, there has been a gradual shift towards less transparent alternative lending sources that can produce high-risk loans and contribute to China’s debt woes. This lending is at times done through smaller local and provincial banks that sell lightly regulated investments,” wrote ChinaPower.
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Stress is showing in the banking sector. For instance, people in China’s Hebei province have been barred from withdrawing large cash amounts from the banks from this month. From October, the same restrictions will be imposed in Zhejiang Province and the city of Shenzhen as per a plan chalked out by People's Bank of China.
Cash transactions of 500,000 yuan (about $70,600 dollars) or above will be regulated for business accounts while for personal accounts, the limits have been set at 100,000 yuan, 300,000 yuan and 200,000 yuan, in Hebei, Zhejiang and Shenzhen, respectively.
While the Communist Party of China has said that the move was aimed at boosting cash circulation and address illegal activities, it has not gone down well with citizenry. Reports suggested that about seven million people in the three provinces will be affected by the move..