To put that in perspective, China began the year with 1.7 trillion yuan in bad loans and ended it with 2 trillion yuan. In other words, after selling roughly their entire declared stock of soured advances, lenders still closed the year with more than they started with.

This has a couple of implications. First, banks are having to dedicate more earnings to loan loss-provisions. In the first half of 2018, Industrial & Commercial Bank of China Ltd. allocated 43 percent of pre-provision profit to boosting capital reserves. At Agricultural Bank of China Ltd., impairment losses were equal to 56 percent of first-half profit, up from 41 percent a year earlier.

Second, the figures imply that China has barely begun to scratch the surface of its bad-loan difficulties. Reported nonperforming debt ratios are low: ICBC’s was 1.53 percent at the end of September, down from 1.56 percent a year earlier. But there has long been speculation about how accurate these numbers are. Chinese bank IPO prospectuses hint at liberal definitions for bad debt.

Read More.. Source Bloomberg

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