A Non-Performing-Loan (NPL) anywhere outside of China is a pretty uninteresting class of asset. There is no precise universal definition, but an NPL is an asset held by a bank or financial institution that does not generate the expected return.
Ordinarily, a bank is expected either to “write-off” an NPL or make a provision against it on the balance sheet to reflect diminished expectations over its eventual payment. Auditing a bank’s asset book ensures this is done, thus warranting the bank’s solvency.
Given the overall level of transparency in China the figures are difficult to estimate. The official rate, according to the China Banking Regulatory Commission (CBRC) stood at 1.4 trillion yuan, or 1.75% of the total loan book at the end of Q1-2016.
This figure is not exceptionally large by international standards, but it has been rising steadily since 2013, and there have always been bearish voices that suggest the official figure is a significant underestimate. Alongside NPLs, for example, there is another category of “Special Mention Loans” totalling 3.2 trillion yuan. Leggi tutto “China’s Playing Hot Potato With Its Non Performing Loans”