Ratio of non-performing loans (NPLs) in the banking sector in China
Expect profound changes in China’s banking sector
The ratios steadily declined until last year when bad loans associated with local government financing platforms started emerging. This triggered fresh concerns about the quality of banks’ loans. Indeed, the amount and ratio of NPLs have been climbing at many state-owned banks and joint-stock commercial banks, and economists say this trend may continue and erode banks’ assets since more firms are expected to have trouble repaying loans as the economy cools.
MIT Professor: Potential Dangers of China’s Banking System
To guard against growth of bad loans, the China Banking Regulatory Commission has established a new set of guidelines in line with the Basel Accord III. The guidelines, which come into effect at the beginning of 2013 along with the Basel agreement, require that the capital adequacy ratio needs to be at least 11.5 percent for large banks and 10.5 percent for small ones. In the first quarter of 2012, the ratios at all five state-owned banks were all above 12 percent. Many other banks, however, are struggling to meet the requirements.
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