Chinese bank NPLs set new record for scariness

Total NPLs jump to US$77 billion in Q3.

The China Banking Regulatory Commission reports an increase in non-performing loans or NPLs at major state-owned lenders, rural banks and foreign banks during the third quarter.

It said NPLs among Chinese lenders have now risen for four consecutive quarters, the longest period of asset-quality deterioration since 2004 when CBRC began releasing these figures.

CBRC said NPLs rose by US$3.6 billion from July to September to US$77 billion. The NPL ratio against total outstanding loans stood at 0.95% by the end of September, up by 0.01 percentage point from three months earlier.

Analysts said it is difficult measuring how big the risks are since banks still have great flexibility when classifying loans. A report by the China Orient Asset Management Corporation said new bad loans will increase 10% this year from 2011.

CBRC Chairman Shang Fulin, however, said that the banking system's risk is under control and the NPL ratio remains at a low level. Bank lending is not concentrated on any high-risk investment projects, and most of the loans have mortgage guarantees.

Analysts say a drop in commercial bank profit growth triggered by the squeeze on interest margins might dampen lenders' capacity to write off more bad loans.