What you need to know about Chinese NPLs

This GARP article puts things into perspective for anyone who wants to come up to speed quickly on the Chinese NPL (non-performing loans) situation. Not in the article but important background is that Q4 of 2015 marked the 17th quarter in a row that commercial bank NPLs have increased. During this same period the Chinese central bank has reduced banks' reserve ratios to 17%. Some might be quick to but this figure in contrast to the Fed’s 10% reserve ratio but a better way to think about it would be in comparison to another BRIC nation such as Brazil with 20%. Another consideration not in the article is that according to reporting by both BB and Reuters Chinese NPL’s doubled in 2015 to 1.95 Trillion Yuan. More troubling still is that the super-majority of these loans are with commercial banks. Again it is important to frame this up not with respect to our long standing views as China’s communist closed economy past where financial and industrial players were both owned and controlled by the central government and therefore making these losses and risk transfers an exercise in “creative self-funding”. Instead now the state owned commercial banks in China, who are burdened with these loans, are not just domestic players but international finance institutions now with operations from NYC to India to Argentina.