the Underlying Problems of China's Domestic Banking in Post-crisis Era

After two-year financial crisis, when most countries engaged in recovering financial sectors, on the other hand, China announced some positive information of its banking industry.

The China Banking Regulatory Commission (CBRC) said that the nonperforming loan (NPL) ratio for all Chinese banks was 0.9% by the end of September of 2011, which was declining compared with the last year’s figure 1.1%. Moreover, the total assets of China’s banking marked a breakthrough 100 trillion RMB by the end of the first season of 2011, and the capital adequacy ratio was 12.3%.

However, we cannot conclude that the Chinese banks are healthy, as it is predictable that the dramatic credit growth which was caused by the quantitative easing policy would incur higher NPL ratios in the following years, the tight monetary policy which was launched at the end of 2010 could make it worse.

Many international financial institutions offered report to warn China’s banking. On May 16, 2011, Bank of America Merrill Lynch pointed that the off balance sheet which occupied about 25% to 60% of all bank loans will increase sharply as the effect of the restrictive lending policy and it would break down the strong looking capital and provisions. In the same month, Standard & Poor’s stated that NPL ratios of Chinese commercial banking will rise up quickly and the rate of capital returns will decline accordingly in the next three years.

As far as I am concerned, the quantitative easing policy which propelled China thriugh the 2008 financial crisis seems troubling the Chinese banks a lot in post-crisis era.