Corporate borrowing costs likely to increase
Many Chinese banks had a rise in their nonperforming loan (NPL) ratio in the first quarter, and experts said on Thursday that the deterioration will persist and push up corporate borrowing costs.
Banks' asset quality is deteriorating, according to data released Wednesday by 10 local banking regulators, Economic Information Daily reported on Thursday.
Banks in Southwest China's Guizhou Province, South China's Guangdong Province, and East China's Zhejiang and Shandong provinces had higher NPL ratios in the first quarter, the report said.
Zhejiang and Shandong recorded NPL ratios exceeding 2 percent and Northeast China's Jilin Province had a ratio of 3.53 percent, the report said.
That's an increase compared with the end of 2015, when the NPL ratio of China's commercial banks was at 1.67 percent, data released by China's bank supervisor in February showed.
Market observers said the figures reflected the slowing economy in China and abroad, and worsening conditions for manufacturing industries caused by weak demand and overcapacity in some industries such as steel.
China's GDP grew 6.7 percent in the first quarter of 2016, the slowest pace since 2009.
The Caixin PMI, an indicator of factory activity, was 49.4 in April, the 14th straight month below the 50-point neutral level. A reading above 50 points indicates expansion while one below signals contraction.
Experts said that the deteriorating NPL situation is unlikely to end soon.
"The asset quality of China's banks will remain under pressure in the next 12 to 18 months," said Yulia Wan, an analyst at credit rating agency Moody's, adding that asset quality is an important factor when Moody's rates banks. A credit rating usually affects the financing capacity of entities, including banks.
Wan noted that small and medium-sized enterprises (SMEs), most of which are privately held, will see rapidly rising borrowing costs.
"Larger enterprises, especially State-owned enterprises in excess capacity industries or those without strategic value, will be under the same pressure as SMEs," Wan told the Global Times on Thursday.
Xu Gao, chief economist at China Everbright Securities Co, also said banks slowed their pace of lending in April, making the credit support for China's real economy weaker.
