China Banks’ Bad Loans Rise for Seventh Quarter as Economy Slows

Chinese banks’ bad loans rose for a seventh straight quarter, extending the longest streak in at least nine years as the world’s second-largest economy continued slowing.

Non-performing loans climbed by 13 billion yuan ($2.1 billion) in the second quarter from the end of March, reaching 539.5 billion yuan, the China Banking Regulatory Commission said in a statement on its website today. Soured debt increased across all lender categories, including state-owned and regional banks.

China’s economy slowed for a second straight quarter during the period, as growth in factory output and fixed-asset investment weakened. A June crackdown on off-balance-sheet lending and other credit outside the banking system caused a cash squeeze, driving money-market rates to a record.

The increase in bad loans was the smallest since the first quarter of last year, narrowing from 33.6 billion yuan in the previous three months, and the end-June ratio of nonperforming loans to total credit was unchanged from three months earlier, at 0.96 percent, figures from the regulator show. July data last week, including industrial output, showed signs that the economy is stabilizing.

The net interest margin at the nation’s 3,800 lenders widened to 2.59 percent in the second quarter from 2.57 percent in the first, the regulator said. The People’s Bank of China last month removed the floor on lending rates offered by the nation’s financial institutions as authorities give banks more freedom to set borrowing costs.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net

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

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