Asian and Chinese NPL

From JP Morgan via this FT Alphaville blog post

  • “We estimate peak NPLs of 5.5% in China, or 8.2% including WMPs; 8.0% in Indonesia; 6.4% in Thailand; 4.8% in India; and 4.4% in Malaysia.
  • We also try to estimate how much provisioning is still to come, by subtracting the past 18 months of write-offs already taken & current levels of excess reserves in the banking system. This argues for an additional provisioning of 370-640bps in China; 570bps in Indonesia; 400bps in Malaysia; 390bps in Thailand; and 320bps in India.
  • Using previous cycles as a guide, we find it takes 11 quarters for NPLs to peak. Given the write-offs seen thus far, this argues that we’re still less than halfway through the cycle in Asia, and in some cases (e.g. Malaysia), at the very beginning.”

Prof. Chris Balding at Peking University thinks that the peak NPL ratio of 5.5% for China is conservative.

He quotes extensively from the prospectuses of at least two banks. Worth beholding.

Huishang Bank:

Our loan classification and provisioning policies may be different in certain respects from those applicable to banks in certain other countries or regions.

We cannot assure you of the accuracy of facts, forecasts, and statistics derived from official government publications contained in this prospectus with respect to China, its economy, or its banking industry.

Shengjiang Bank wrote in their prospectus:

Our historical non-performing loan ratios may not fully reflect the actual changes of our asset quality due to government-sponsored disposals and write-off of non-performing loans in the past that were not in the ordinary course of business….we cannot guarantee that the government will continue to help us dispose of and write off our non-performing assets.

Loan may be unrecoverable despite a favourable court judgement due to our failure to apply to the court for enforcement before the applicable deadline” or “no loan contract (agreement) has been signed with the borrower, or the original loan contract (agreement) has been lost, and the borrower refuses to confirm the loan…


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