ICBC Chairman Expects Rise in China Bad Loans

The chairman of Industrial and Commercial Bank of China (ICBC), the country’s largest lender, has warned that bad loans will inevitably rise and weaker lenders will be wiped out as China’s government relaxes its grip on the economy.

In an interview with business daily the
Financial Times
Jiang Jianqing, who has headed the ICBC since 2000, responded to criticisms, saying that ICBC is prepared for the challenges and should not be held to impossibly high standards.

Jiang told the
FT
that the bank’s current non-performing loan ratio of 0.91% was “excessively good” but would inevitably increase as ICBC extends more credit to riskier borrowers such as small companies and households.

“Look at other major international banks. Their [bad loan ratios] are 1%, 2% or higher, but no one requires more of them. For China, the expectations are too high. The world seems to think that Chinese banks have to keep their bad loan ratio at less than 1% and that we have to keep lowering it year after year. Can we really cut it to zero? That’s not economically possible.”

Jiang added that China’s accelerated pace of interest rate deregulation posed another serious challenge, squeezing the guaranteed margins that its banks have traditionally enjoyed. As the government has stated that failing banks will be allowed to go under, lenders would no longer be able to count on state support.

“If you do badly, you will be eliminated,” he said. “The key thing is whether provisioning is sufficient, and our provision level is excellent.”

This week has also seen ICBC become the 23rd bank to be registered to operate in New Zealand. ICBC New Zealand includes the Reserve Bank of New Zealand’s former governor, Don Brash, among its directors.

New Zealand’s central bank announced ICBC’s registration on 19 November, the first since Heartland New Zealand was registered last December.

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