Causes and Solutions of Npl in China
Jun. 2007, Volume 6, No.6 (Serial No.48)
Chinese Business Review, ISSN1537-1506, USA
Causes and solutions of non-performing loan in Chinese commercial banks
GUO Ning-ning
(Jiangsu Branch, Bank of China, Nanjing 210005, China)
Abstract: Non-Performing Loan (NPL) is one of the concrete embodiments of credit risk which banks take. NPL is a huge puzzle for Chinese commercial banks, so how to enhance risk management to improve assets quality and lower down NPL are of great importance to those banks. Key words: NPL; Chinese commercial banks; causes; solutions
1. Analysis on causes of NPL in commercial banks
There is so-called “4-3-3” distribution for the causes of formation of corporate customers’ NPL from actual practice, i.e. non-standardized outside circumstance factors account for 40%, enterprises’ undeveloped inside operation management factors account for 30%, and banks’ extensive inside operation management factors, which are the emphasis of analysis in this paper, account for 30%. 1.1 Non-standardized outside circumstance is the primary factor of formation of NPL During the shift from planned economy to market economy, Chinese banks are affected badly by outside circumstance, for example, national policies, behavior of local governments and social credit environment, and they commit great cost for social development, economic mechanism reform and economic structure adjustment. A great deal of enterprises take the advantage of the shift to escape or abolish the bank debts, especially at the end of 1990s, through bankrupting, spinning off, merging and other various methods. 1.2 Enterprises’ undeveloped inside operation management is the main factor of formation of NPL Ever since a long time ago, many Chinese enterprises have been troubled by inflexible operation mechanism and management confusion. Some enterprises lack accurate judgment for the trend of market and enlarge production scale in hot industries without any consideration, which lead to serious
Chinese Business Review, ISSN1537-1506, USA
Causes and solutions of non-performing loan in Chinese commercial banks
GUO Ning-ning
(Jiangsu Branch, Bank of China, Nanjing 210005, China)
Abstract: Non-Performing Loan (NPL) is one of the concrete embodiments of credit risk which banks take. NPL is a huge puzzle for Chinese commercial banks, so how to enhance risk management to improve assets quality and lower down NPL are of great importance to those banks. Key words: NPL; Chinese commercial banks; causes; solutions
1. Analysis on causes of NPL in commercial banks
There is so-called “4-3-3” distribution for the causes of formation of corporate customers’ NPL from actual practice, i.e. non-standardized outside circumstance factors account for 40%, enterprises’ undeveloped inside operation management factors account for 30%, and banks’ extensive inside operation management factors, which are the emphasis of analysis in this paper, account for 30%. 1.1 Non-standardized outside circumstance is the primary factor of formation of NPL During the shift from planned economy to market economy, Chinese banks are affected badly by outside circumstance, for example, national policies, behavior of local governments and social credit environment, and they commit great cost for social development, economic mechanism reform and economic structure adjustment. A great deal of enterprises take the advantage of the shift to escape or abolish the bank debts, especially at the end of 1990s, through bankrupting, spinning off, merging and other various methods. 1.2 Enterprises’ undeveloped inside operation management is the main factor of formation of NPL Ever since a long time ago, many Chinese enterprises have been troubled by inflexible operation mechanism and management confusion. Some enterprises lack accurate judgment for the trend of market and enlarge production scale in hot industries without any consideration, which lead to serious
References: (omitted) (Edited by Cara Wan and Rainbow Lee) 19