China probes accuracy of bad loans data

BEIJING • China's central bank is investigating the accuracy of non-performing loans (NPLs) data at banks, sources said yesterday, underlining policymakers' concerns about rising debt in the country.

Specifically, the central bank's financial stability bureau is investigating whether any NPLs have been miscategorised as normal loans or special mention loans, referring to debt at risk of default, according to sources who saw a central bank notice on the issue.

The probe comes as slowing economic growth raises regulatory concerns that banks are increasingly covering up their NPLs to dress up their balance sheets, said one of the sources.

The build-up of bad debts, which have increased for 18 consecutive quarters, follows the state-driven credit boom of 2009 and has so far shown no signs of slowing.

Official data showed that Chinese commercial bank NPLs rose to an 11-year-high of 1.4 trillion yuan (S$294.1 billion), or 1.75 per cent of total bank lending, at the end of March. In a report this month, brokerage firm CLSA said NPLs may account for 15 to 19 per cent of loans.

Bank analysts widely believe NPLs in China's banking sector are far more severe than official data suggests, as some banks delay loan recognition and use off-balance sheet lending to hide bad debts.

The People's Bank of China (PBOC) is looking into whether banks' asset quality is appropriately categorised and if there is interference from local governments in banks' lending and refinancing decisions, another source said.

Political interference is particularly difficult for policy banks, which are responsible for state-directed lending, the source said, as much of their lending is tied to government-backed entities such as local government financial vehicles or public infrastructure projects.

The central bank is also checking to see if troubled assets have been secretly moved off balance sheets and if loan repayment schedules are reasonable, the source added.

Local offices of the PBOC will conduct spot checks and on-site investigation, and issue evaluation reports, the source said.


A version of this article appeared in the print edition of The Straits Times on May 17, 2016, with the headline 'China probes accuracy of bad loans data'. Print Edition | Subscribe