A recent spike in sales of non-performing loans (NPLs) by small and mid-sized commercial banks is related to policy adjustment by the central government and should be "encouraged," a banking professor told the Global Times Sunday.
The Shenzhen branch of China CITIC Bank auctioned off a package of bad assets worth 1.7 billion yuan ($277 million) for a price of only 20 million yuan on the Shanghai United Assets and Equity Exchange in late June, the Shenzhen Economic Daily reported June 25.
"Banks should be encouraged to liquidate their NPLs in a timely and dynamic fashion … Given that the commercial banks' NPL ratio is expected to continue rising, liquidating NPL assets can help them control the related risks," said Guo Tianyong, director of the Research Center of China Banking at the Central University of Finance and Economics.
Meanwhile, Shanghai Pudong Development Bank (SPDB) wrote down a total of 510 million yuan in bad loans and bad credit card assets during the first half of the year, the SPDB said in a statement filed to the Shanghai Stock Exchange on June 26.
In comparison, the mid-sized Shanghai-listed bank wrote down 830 million yuan of NPLs for the whole year of 2012, according to an SPDB statement last year.
The increase in NPL liquidation scale this year is related to a central government policy adjustment, Guo said.
The State Council issued guidance for the financial services industry on July 1, which said that it would "support banks' transfer of NPLs, and delegate more authority in voluntary NPL write-down to the banks, in a bid to allow them to control risks voluntarily in a timely manner."
The big State-owned banks have fallen behind in the speed of liquidating their bad assets because of some other policy constraints, such as the Ministry of Finance's requirements to limit the loss of State-owned assets and tax revenues, Guo noted.
Smaller banks are forced to sell more NPL assets to collect cash at a time when liquidity conditions for banks have been tightening, as exemplified by a slowdown in deposit growth rates in June.
The total deposits in the commercial banks in China stood at 100.9 trillion yuan at the end of June, up by 14.3 percent year-on-year, the People's Bank of China, the central bank, said in a statement on its website Sunday.
The growth was 1.9 percentage points slower than in May, the central bank said.
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