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.
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.
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.
Here’s more from Bloomberg:
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