China Banking Monitor

Summary

Although the NPL ratio in the banking system declined as banks sped up the disposal of bad loans, asset risk remained high amid the repeated pandemic threats and the slow recovery. The risks associated with Evergrande’s fallout are manageable although it will take a longer time for the banking sector to absorb the shock.

Key points

• Key points:
• Bank assets growth slowed mainly due to sluggish non-loan assets expansion, reflecting banks’ efforts to rein in their shadow banking activities ahead of full implementation of new asset management rules.
• Banks’ net profit was supported by both low funding cost and low base effect. Meanwhile, the net profit was also underpinned by the reduction of impairment provisions.
• Asset risk remained high amid the repeated pandemic threats and the slow recovery. However, the NPL ratio declined as banks sped up the disposal of bad loans.
• Capital adequacy ratio remained stable thanks to both healthy profit growth and lower pace of risk-weighted assets expansion. Small lenders are still subject to capital shortfalls.
• Banks’ liquidity remained adequate. The interconnectedness between banks and the shadow banking system continues to diminish.

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