China's big five banks are losing money from writing off bad debt at a rate faster than they have been able to earn profits or raise capital this year, diminishing hopes that the industry could start to put the worst of China debt problem behind it next year while the non-performing loan (NPL) ratio is still climbing.
Led by the Agricultural Bank of China, which set the industry record for worst NPL ratio of 2.39 per cent, the average NPL ratio at the national "big five" has climbed back to 1.72 per cent, up from 1.69 per cent recorded by the China Banking Regulatory Commission at the end of June. The increase follows a brief hiatus from what seemed to be an improvement from earlier figures.
Total losses from bad assets at the big five amounted to 273.7 billion yuan ($40 billion) in the nine months ended September, versus the 776.9 billion in net profits and 1.8 trillion yuan in new capital they raised mostly through bond and rights issues so far in 2016.
Partly because of central government pressure to fix the bad debt issue, banks are reporting a 54.6 per cent higher bad loan loss figure compared to a year ago. At the same time, net profits came in flat, reaching an average of just 0.89 per cent when excluding a one-off 9.9 per cent gain by Bank of China from a series of internal asset transfers within its Hong Kong business.
"If ICBC could begin to show it is stabilizing on its level of non-performing loans formation, we could start to confirm the thesis that we are to see a peak on the non-performing loans issue in the banking industry next year," said Shujin Chen, research director at DBS Vickers.