Chinese banks' bad loans to hit $95b in 2024

Stress from property sector continues to weigh.

Chinese banks’ non-performing loan (NPL) ratio is expected to hit as high as $95.77b (RMB660b) in 2024, driven by stress from the property sector, reports S&P Global Ratings.

NPL ratio for small companies, meanwhile, is expected to peak in 2023, to 3.3% of banks’ total loans.

Despite weaknesses, however, banks in China are on the path back to normalization thanks to the country’s ongoing economic recovery.

The country's reopening will reduce loans in need of a moratorium and improve the cure rate for forborne loans, according to said S&P Global Ratings credit analyst Ming Tan. 

“At the same time, asset classification rules were recently tightened, and as a result, we expect reported NPLs will likely rise moderately over the next few years,” Tan said.

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In contrast to reported NPLs, non-performing assets (NPA) should start gradually falling. NPA includes reported NPLs, special mention loans, estimates of forborne loans, and other problem assets classified normal but are either 90 days overdue or subject to a long restructuring process, by S&P’s evaluation.

Overall NPA ratio is expected to fall to 5% in 2025– down from the 6.5% estimate it made in 2022. Better-than-expected GDP growth and reported NPL and SML ratios in 2022 contributed to a lower starting point for our forecasts.

However, NPA projection is still higher than pre-pandemic levels, which was estimated at 4.0% in 2019.