Chinese banks bad loans surge to $292.55b in May

NPL ratio also rose from 1.75% to 1.9%.

Stricter loan classification requirements appear to be kicking into effect as bad loans held by Chinese commercial banks surged from $272.7b (RMB1.77t) in March to $292.55b (RMB 1.9t) as of end-May, according to central bank data. 

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

The non performing loan ratio also increased by 15 basis points from 1.75% in March to 1.9% in May despite holding steady in the past year.

Efforts by authorities to rein in risks in the country’s financial system drove the rapid increase in NPLs, according to analysts.This comes as the country’s banking regulator ordered all commercial banks to reclassify loans overdue for more than 90 days as of end-June without exception. 

Also read: China regulator carries out inspections to sniff out shadow banking activity

“Despite the authorities’ deleveraging efforts, overall credit continues to build up within the financial system. As such, Fitch expects asset quality pressures to remain although reduced economic headwinds, if sustained, could lower pressure in the short-term,” Grace Wu, head of China bank ratings at Fitch in a video.