China’s non-performing loans may be manageable

Significance

However, the overall health of China’s banking sector is problematic. The banks have significant non-performing loans (NPLs) on their balance sheets. The situation has further deteriorated in 2020 due to the pandemic and resulting pressure on the business sector and state-directed lending.

Impacts

• Reduction of state-directed lending would benefit private companies, which drive China’s economic development.
• Signs of more independent decision-making by listed banks would likely increase the value of their shares.
• Regulation of shadow lending and fintech will push depositors, borrowers and users of payment services back to the official banking sector.