Regulator warns banks bad loans are likely to rise

China's top banking and insurance regulator said the country is under relatively high pressure of seeing a rise in nonperforming loans as its NPLs have not been fully exposed.

"We must be well prepared for a possible big rebound in nonperforming loans," said a spokesperson of the China Banking and Insurance Regulatory Commission on Saturday.

The exposure of default risk has been delayed temporarily because there is a time lag between the economic downturn and its reflection in the financial sector, and also because China's macroeconomic policies have risk hedging effects in the short term, the spokesperson said.

The CBIRC urged banking institutions to increase loan-loss provisions, consolidate their capital strength and realize steady operation, to improve their risk resistance capacity.

The regulator required banking institutions to truthfully classify assets into different categories and strictly distinguish the companies that face temporary hardships due to the novel coronavirus outbreak from those companies that have high operational risks. It also urged banking institutions to ramp up efforts to dispose of NPLs and further expand channels for NPL disposal.

By the end of June, the outstanding balance of NPLs of China's commercial banks was 3.6 trillion yuan ($514.36 billion), increasing by 400.4 billion yuan from the beginning of this year. During the same period, the NPL ratio rose 0.08 percentage point to 2.1 percent, according to the CBIRC.