Chinese banks fear credit risks in industries with overcapacity

The greatest credit risk that Chinese banks faced in 2015 was related to the loans to industries mired in overcapacity, according to a survey released on Sunday.

According to a survey jointly released on Sunday by the China Banking Association and PwC, 82.1 per cent of bankers said the primary credit risk of their banks remained in the industries with excess capacity, including the industries of iron, steel, cement, and shipping, while 57.6 per cent considered the risk of loans to small and micro enterprises as the primary credit risk.

Ba Shusong, chief economist of the association and project leader of the survey, said more than 40 per cent of the bankers expect that the non-performing loan ratio will stand between one per cent and three per cent in the next three years, signifying that risk management has become the top priority of the banking sector.

Statistics from the China Banking Regulatory Commission show that the NPL ratio for commercial lenders jumped 43 basis points year-on-year to 1.59 per cent at the end of September.

The outstanding NPLs were 1.19 trillion yuan (S$258 billion), up 55 per cent from a year earlier.

Wu Weijun, chief partner of PwC Beijing, advised commercial banks to draw as much loan loss provisions as possible to fend off future risks.

Polling 1,328 bankers from 116 financial institutions nationwide, the survey found that 82.3 per cent of the bankers said China's liberalization of interest rates was the primary market risk they faced in 2015, which was followed by the increase of capital market volatility (55.6 per cent), the uncertainty of timing and range of adjustments to China's monetary policy (51.6 per cent), and the widening of two-way fluctuations of renminbi exchange rates (50.1 per cent).

The survey found that 67 per cent of the bankers favour supporting city infrastructure the most, followed by the medical industry, information technology services and transportation.

Restrictive credit policies applied to metallurgical, real estate, paper making, textile and ship-building industries.

The survey showed that the bankers are not optimistic about their profit earning efficiency in the coming three years, with 60 per cent expecting an annual profit growth at less than 10 per cent.

About 30 per cent of those who participated in the survey listed the growth of banks' intermediary business and the increase of interest-bearing assets respectively as the factor that will make the largest contribution to the banks' profit growth.

According to the survey, banks will keep pushing forward strategic transitions to deal with increasingly intensified competitions.

Nearly 80 per cent of the bankers care most about how to deepen the features of their banks and differentiate their business from others.

Around half of the surveyed bankers said they will increase investment in the Internet finance.

Xinhua contributed to this story