Current international standards divide npls in

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Unformatted text preview: st due and consumer loans 180 days past due are generally classified as non-performing. Current international standards divide NPLs in commercial banks into four categories: special mention, substandard, doubtful and loss. Amount of NPLs in China's Banking System The exact amount of non-performing loans in China is not clear at this moment. There is a large discrepancy between the official numbers and the estimate of the foreign organizations largely due to different definitions used. In the press release of the Chinese State Council in January 2000, Dai Xiangrong, the governor of the People's Bank revealed that there are about 2.7% of "bad debt" and about 8% to 9% of "past due loans" and "doubtful loan" combined. Since the loan outstanding of all state-owned commercial banks in mid 1999 were RMB 9,062 billion, NPLs could be estimated at less than RMB 1,062 billion. This number obviously underestimated the total NPL amount because the total amount of NPLs transferred from the big four SOBs to the asset management companies (AMCs) in 1999 was about RMB 1.3 trillion. Some foreign experts estimated a total of 40% of the banks' outstanding loans were non-performing in accordance with international standards. Some domestic scholars indicate about 30% of the total outstanding loans of big four SOBs were non-performing 21(Table 3). Using the 30% estimate, the balance of outstanding loan at the end of second quarter of 1999 of RMB 9,062 billion would result in an estimated total NPL of RMB 2,719 billion. This estimated NPL is also about twice of the total NPLs the AMCs received in 1999, as confirmed by Dr. Chunlin Zhang, a senior 21 Zhou, Yi, Theory and Practice of AMC Operation, 01/2002, Page 4, China Price Publishing House. restructuring spet from World Bank Beijing Office. Therefore, the tentative conclusion is that 30% of the total outstanding loans of big four SOBs or RMB 2,719 billion could be the estimate of total Chinese NPLs at the end of 1999. Table 3: Estimate of Total Loan Outstanding vs. Non-performing Loan (RMB Billion) 1992 1993 1994 1995 1996 Outstanding Loan 2,108 2,578 2,731 3,228 4,757 NPL 422 516 819 968 1,427 Percentage 20% 20% 30% 30% 30% 1997 5,238 1,571 30% Source: Theory and Practice of AMC Operation Special Character of China's NPL Issue - A Stock Problem The NPL problem in China is more a stock problem than a flow one. The stock problem arises from the bad loans undertaken in the past and the flow problem refers to future loans to enterprises which will not be able to serve such loans and thus become classified. Almost no NPLs had ever been written off from the balance sheets of SOBs before 1991 when SOBs were required to set up reserves for NPLs in their accounting books. The quantity of the reserve provision for NPLs are, however, linked to the volume of total loan outstanding but not to the magnitude of classified loans. In 1991, the Ministry of Finance dictated banks to set aside reserves for NPLs equal to 0.6% of their loan outstanding. In 1997 the reserve ra...
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This document was uploaded on 03/12/2014.

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