Chinese commercial banks profit up 6.37% to $149.58b in H1

However, bad loans also rose from $26.56b to $284.64b in Q2.

China’s commercial banks opened the year on steady financial footing after profits rose 6.37% YoY to $149.58b (CNY1.03t) in the first half of 2018, according to state news agency Xinhua. 

Along with the mild earnings growth, however, came a surge in the bank’s bad loans with the nonperforming loan (NPL) ratio of Chinese commercial banks hitting 1.86% in Q2. 

Outstanding bad loans from commercial banks correspondingly jumped from $26.56b (CNY182.9b) in Q1 to a whopping $284.64b (CNY1.96t) in Q2. This represents the largest quarterly jump in more than ten years.

Also read: Chinese banks face risk from surging bad loans in real estate

China’s widespread deleveraging campaign have squeezed liquidity conditions in the banking sector which accelerated the rate of slippages and deteriorating asset quality.

Moreover, the regulator’s decision to reclassify as nonperforming all loans that are overdue for more than 90 days have contributed to the ballooning bad debt, which makes it harder for smaller banking players. 

Rural commercial banks have the highest NPL ratio amongst the country's lenders in Q1 at 3.26% which could prompt bailouts in the form of forced mergers or share capital injections. Joint stock banks and city commercial banks fare slightly better with NPL ratios of 1.7% and 1.53% respectively.

Chinese banks’ overall capital adequacy ratio (CAR) also fell from 13.64% in march to 13.57% in June. Lenders' liabilities rose 6.6% YoY to reach $34.85t (CNY240t).