Guiyang Rural Commercial Bank capital wiped out after tightening loan rules

Surging bad loans pushed CAR down from 11.8% in 2016 to below 1% by end-June.

Bloomberg reports that Chinese rural bank Guiyang Rural Commercial Bank Co., had almost all its capital wiped out as bad loans which ballooned from $126.93m (CNY841m) to $1.18b (CNY7.8b) prompted the capital adequacy ratio (CAR) to plummet below 1% by end-June.

Also read: Are smaller banks bearing the brunt of China's bad loan problem?

Guiyang Rural’s woes stem from a recent policy requiring lenders to classify as non-performing all loans that are overdue for more than 90 days.

Such overdue loans accounted for almost a fourth (24%) Guiyang Rural’s total advances in 2017, resulting in a fourfold jump in the bank’s NPL ratio, according to credit rating agency China Chengxin International Credit Rating.

Also read: Chinese banks bad loans surge to $292.55b in May

Other smaller Chinese banks which remain vulnerable to the same risk should they top up bad-loan provisioning to 150% of NPLs, include Bank of Liuzhou Co., Shandong Guangrao Rural Commercial Bank Co. and Laishang Bank Co.

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