As of 2004 chinas wholly state owned commercial banks

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: na’s financial depth grew significantly from 117 percent of GDP in 1994 to 221 percent of GDP6 in 2004. 研 究 所 年 報 134 III.�Evolution�of�Non-performing�Loan�in�China Classification�of�NPLs Chinese Banks traditionally adopt the 4-category system to classify loans as pass, pastdue, idle and loss. As of 2004, China’s wholly state-owned commercial banks (SOCBs) and joint shareholding commercial banks (JSCBs) started to adopt the international 5-category loan classification system. The 5-category system categorizes bank loans according to their inherent risks as pass, special-mention, substandard, doubtful and loss. “Pass” indicates that borrowers are able to honor the terms of the contracts and there is no reason to doubt their ability to repay the principal and interest of loans in full and in a timely manner. “Special-mention” means that borrowers are able to serve their loans currently, although repayment may be adversely affected by specific factors. “Substandard” means that borrowers’ abilities to serve their loans are in question. Borrowers cannot depend on their normal business revenues to pay back the principal and interest so losses may ensue, even when guarantees are invoked. “Doubtful” indicates that borrowers cannot pay back the principal and interest in full and significant losses will be incurred, even when guarantees are invoked. “Loss” means that the principal and interest of loans cannot be recovered or only a small portion can be recovered after taking all possible measures and resorting to necessary legal procedures. The difference between the two systems seems to be that more subjective judgment is involved in the internationally applied 5-category system than in China’s 4-category system, which points to a more prudent and forward-looking approach for international banks than for Chinese banks. The difference as to the definition of NPLs between the two systems lies in that in the 4-category system the loans overdue on principal payment for 1 day are classified as non-performing, while in the 5-category system the non-performing relates to the interest payment, but with an allowance for 90 days. The latter also involves credit officer’s judgement of borrower’s financial position. So the two definitions do not seem to match with each other, and thus it is difficult to compare the sizes of the NPLs measured under the two systems. While it seems to be a common belief that the NPLs size with China’s definition is less than that with international definition, how much it is less is difficult to estimate. Evolution�of�NPLs�in�China Since almost all of NPLs is generated by SOCBs, the discussion below focuses on NPLs of 6 Mckinsey Global Institute (2006). Non-Performing Loan of China’s Banking System 135 SOCBs. As Chinese government never officially published the size of NPLs before 2003, we could only use the data estimated by previous literatures. The evolution of NPL...
View Full Document

This document was uploaded on 03/12/2014.

Ask a homework question - tutors are online