China Banks’ Bad Loans Rise for Fifth Quarter as Economy Weakens

Chinese banks’ bad loans increased for a fifth straight quarter, the longest deterioration streak since the data became available in 2004, after the economy slowed.

Loans overdue for at least three months rose by 14.1 billion yuan ($2.3 billion) in the three months ended Dec. 31, to 492.9 billion yuan, the China Banking Regulatory Commission said in a statement on its website today. Bad loans rose most at mid-sized lenders and rural banks, the regulator said.

China’s banking system is grappling with rising defaults and shrinking loan profitability after the world’s second- largest economy expanded at the slowest pace in 13 years. Net interest margin at the nation’s 3,800 lenders contracted to 2.75 percent in the fourth quarter from 2.77 percent in the third, the regulator said.

The Purchasing Managers’ Index fell for a second month in February as a gauge of new orders declined, a signal the nation’s economic recovery may be losing steam, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today.

Non-performing loans accounted for 0.95 percent of banks’ total advances as of December, unchanged from a quarter earlier, according to the CBRC’s statement. Banks’ capital adequacy ratio strengthened to 13.25 percent as of Dec. 31, from 13.03 percent in September and combined net income at the nation’s banks grew 18.9 percent last year to 1.2 trillion yuan.

Bad loans in Wenzhou, the eastern Chinese city hit hardest by the collapse of private lending last year, have soared to 23.86 billion yuan, from 8.6 billion yuan in 2011, the China News Service reported yesterday. The city is assigning about 100 judges to help resolve soured debts at its lenders, the report said.

Shares of Industrial & Commercial Bank of China (601398) Ltd., the world’s largest bank by market value, fell 0.4 percent to HK$5.55 as of 11:06 a.m. in Hong Kong. China Construction Bank Corp. (939), the third-largest, fell 0.3 percent to HK$6.38 in the city.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net