NPL ratio of commercial banks hits record low

China Banking Regulatory Commission's efforts in the past three years have finally seen effect. The ratio of non-performing loan (NPL) of China's major commercial banks (state-owned and joint-stock commercial banks) has fallen from two digits to one digit.

The ratio of NPL of major commercial banks has fallen from 17.2 percent in 2003 to 8.9 percent in 2005, becoming an important milestone in the history of China's banking industry, an official from Banking Regulatory Commission said.

The Chinese major commercial banks' balance of NPL decreased by 186.3 billion, 394.7 billion and 498.6 billion yuan in 2003, 2004 and 2005 respectively, representing the falling of NPL ratio at 5.8 percent, 4.6 percent and 4.3 percent. The NPL ratio in 2005 hit the lowest in history.

The Banking Regulatory Commission has successfully prevented new NPL from emerging in 2004 and 2005, while the macro-economic environment could easily have given rise to occurrence of new NPL.

Since inception, the Commission has experienced the regulation of overheated industries like iron and steel, cement, and electro-aluminum in 2004, and control of too quick increase of investment in real estate and rise of house price.

The official from the Banking Regulatory Commission said that in 2006, the major tasks for macro-economic control are the adjustment of industrial structure and the control of excessive production capacity, which will subsequently improve the market environment for banking industry. But experiences show that this process will bring about new risks to commercial banks and more pressure for NPL to bounce back.

By People's Daily Online