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China's Banks Getting Less Strict on Bad Loans - Moody's

China’s Banks Getting Less Strict on Bad Loans - Moody’s

(10 September 2015 - China) China’s banks are relaxing their attitude in recognising bad loans, failing to include some debts that have been overdue for at least 90 days, according to ratings agency Moody’s.

The company cited its analysis of the 1H results of 11 listed banks, including Bank of China and Agricultural Bank of China Ltd., in a statement in earlier this week.

Moody’s said that the pace of the increase in loans overdue for at least 90 days isn’t being reflected in increases in overall bad-loan numbers in a stressed Chinese economy.

Instead of concentrating on banks’ bad-loan ratios, Moody’s studies non-payments of 90 days and more. The ratio for that debt rose by 77 basis points in the first half for the 11 banks studied, outstripping a 24 basis point gain in the ratio for their total nonperforming loans, according to senior vice president, Christine Kuo.

“While most of the banks recorded a modest growth in profit in 1H 2015, their asset quality and margins are coming under increasing pressure,” said Kuo.

“Pressure on asset quality in particular, is reflected not only in the rise in headline non-performing loan ratios, but also in the less stringent recognition of such loans.

“We note that an increasing amount of loans overdue for at least 90 days are not classified as non-performing loans.”

Moody’s expects Chinese banks’ profits to deteriorate further in 2H 2015 because of bad loans and declines in net interest margins and fee income from stock-related services.

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