China Data Talk: “Financing” is one of the hottest topics recently, both enterprises (SME) and individuals have big headaches on the unavailability of loans. On the other hand, though it is derived from loans, “non-performing loans” is deliberately overlooked. Reason is simple – performance comes first, risks are left to the future.
Non-performing loans will definitely increase afterward (sure for the amount, and sure for a higher ratio). Some footnotes should be added to the currently low-level NPL ratio.
NPL Ratio is Bound to Rise
Chart provided by: CEIC
And in a certain period of time, NPL ratio will only be rising. Again, reason is simple – the denominator, total loans, is capped within a certain range; while the nominator, non-performing loans, will increase with worsen business environment in economic downturns (new NPLs in both recently delivered loans and long existing loans). This is why NPL ratio is bound to rise.
However, loans can be “re-defined” with changes in their usages and natures; non-performing loans can also be “pushed forward” with changes in due days.