February 21, 2019 | 03:50 PM


27.03.2013China Bank Regulator Warns On Bad Loans, Especially To Solar Sector

Chinese banks could be in trouble if they aren't extra prudent about their lending practices, especially to the solar industry.

Kenneth Rapoza, Forbes.com

Chinese banks could be in trouble if they aren’t extra prudent about their lending practices, especially to the solar industry.

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The China Banking Regulatory Commission (CBRC) urged banks on Tuesday to pay close attention to the credit risks in certain industries affected by the economic slowdown and hit by excess capacity.  Industries that have been overbuilt and over leveraged include housing, iron and steel manufacturers, wind power equipment and solar panel makers.  The regulator also stressed the risks to companies funded by local and foreign private equity, China Daily reported today.

Authorities at the bank said the outstanding loan portfolio of the most indebted industries was around 30 to 40 trillion yuan ($4.83 to $6.44 trillion). Last year, total banking sector assets were 133.6 trillion yuan, according to the CBRC, so those sectors account for over 25% of bank assets.

Bank head offices have now taken back the credit approval rights for property development projects and industries with outdated production capacity or overcapacity, the China Securities Journal reported on Monday, citing a spokesperson for a commercial bank.

Analysts said that despite a cautious stance by some banks, the risks associated with those industries are still manageable, and that creditors’ rights will not be affected in case of consolidation within those sectors.  One of the most troubled sectors, solar, will most certainly face consolidation in the years ahead.  Its biggest player, Suntech Power (STP), filed for bankruptcy this month as a sign the sector is overbuilt and under protected from lackluster demand from Europe, its main market.

Chen Yuan, chairman of China Development Bank, said that his bank will guard against the risks in the solar power sector, and will curb new loans to solar panel manufacturers.  Xiao Gang, former chairman of the Bank of China, said that the iron and steel industry was also on a credit watch list due to overcapacity, China Daily reported.

As of last year, the non performing stock of commercial bank loans for all sectors reached 492.9 billion yuan, up by 64.7 billion yuan from 2011, according to the CBRC.  The non-performing loan ratio, which measures the percentage of bad loans as a portion of the overall loan portfolio, stood at 0.95%, decreasing by 0.01 percentage points.

By comparison, Brazil’s non-performing loan ratio is around 5.4%, up from around 4% in 2011, and no one in the market ever talks about Brazilian banks being under stress.

The annual accumulative net profit of China’s commercial banks last year totaled 1.24 trillion yuan, meaning a year-on-year growth of 18.9% and an average return on asset of 1.3%, keeping the same level with the same period of last year.

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