Chinese banks stumble on Beijing's consumer lending push
Since March, financial regulators have issued multiple directives urging banks to offer more, and cheaper, loans to spur consumption, as part of broader efforts to counter the impact of the trade war with the United States.
This prompted banks to market personal loans at record low interest rates below 3% initially, before raising them back amid concerns over shrinking profit margins.
Loan managers and bank executives told Reuters they are struggling to raise consumer lending, citing subdued demand, as well as concerns over an already rapidly growing pile of bad household debt and uncertainty over their clients' incomes.
Recent wage cuts in the financial industry, manufacturing and the state sector have further dented households' financial health while higher U.S. tariffs are fuelling concerns over jobs and income stability.
"It's very difficult to find borrowers for consumer loans," said a branch head at a state-owned bank, requesting anonymity due to the sensitivity of the topic. "Banks are caught between meeting lending targets and controlling bad loans."
"If defaults rise, branch officers face penalties. Many loan officers borrow from each other's banks to meet lending quotas."
The People's Bank of China and the National Financial Regulatory Administration did not immediately respond to requests for comment.
Consumer loans grew 6.1% in the first quarter, slower than the 8.7% in the same period of 2024 and the 11% in January-March 2023, according to the central bank. Data for the second quarter is expected in coming weeks.
The overall NPL ratio of China's commercial banks was 1.51% as of the end of March, remaining steady compared to 1.50% at the end of 2024, official data showed. Smaller rural commercial banks posted a higher NPL ratio of 2.86% in the first quarter compared to 1.22% at major state banks.
Official data doesn't disclose the NPL ratio of overall consumer loans, but the bank executives and loan managers told Reuters the defaults on personal lending have risen sharply this year.
BAD LOANS PILE UP
The banks' struggles bode ill for official efforts to boost lending to consumers, seen as a faster alternative to raising household incomes. The latter would require indebted local governments spend more on social welfare and civil servants pay, among other measures.
Any debt-driven jolt to consumption is likely to prove "transitory", said Lynn Song, chief Greater China economist at ING.
"Income growth-driven consumption would be strongly preferable in terms of achieving a more sustainable recovery," Song said, adding that was a more difficult task for authorities.
Economists aren't concerned about absolute household debt levels, which are about 60% of economic output in China, compared with about 70% in the U.S. and more than 90% in South Korea.
But they worry about how quickly non-performing loans (NPLs) in the consumer debt sector have been rising.
In the first quarter of this year, Chinese banks put up 74.27 billion yuan ($10.34 billion) of NPLs for sale, a 190.5% increase from the same period of 2024, data from the Banking Credit Asset Registration and Transfer Center show.
About 70% of them were personal loans.
"We have a growing pile of bad loans. For many clients who can't repay, all we can do is negotiate extensions," said a loan officer at a major state-owned bank.
The officer said his bank prioritised writing off NPLs over issuing new loans.
The Industrial Commercial Bank of China (601398.SS), opens new tab, the world's largest commercial bank by assets, said its consumer NPL ratio rose to 2.39% at the end of 2024, from 1.34% a year earlier.
Smaller, regional lenders are faring much worse. Bohai Bank's consumer NPL ratio jumped to 12.37% in 2024 from 4.44% the previous year. Harbin Bank's rose to 5.51% from 3.94%.
"Clients are in poor operating conditions due to the tariffs war and unable to repay their loans," said a regional bank manager.
Another key challenge for banks is that consumers don't want to borrow.
A central bank survey of 20,000 households showed that 61.4% intend to boost savings — an increase of almost 20 percentage points from pre-pandemic levels.
"The fundamental issue is that income growth is slowing and households are anxious, so they are restraining their spending and borrowing," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
"It's not that they can't get a cheap loan."
($1 = 7.1770 Chinese yuan)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Auto Blog
an hour ago
- Auto Blog
Aston Martin May Sell Stake in Formula 1 Racing Team and Go Private in Turnaround Efforts
Tesla is falling behind BYD in several key international markets, but its rival's recent operational struggles are opening a door of opportunity. Despite coming up with some compelling vehicles in recent years, Aston Martin has continued to struggle financially, leading it to some tough decisions as it plots a path forward. Among other efforts, the storied British automaker reportedly plans to sell its stake in its Formula 1 racing team, and some expect the company to delist itself from the London Stock Exchange. Aston only owns 4.6 percent of the racing team, but the sale would raise $146 million for the company, which desperately needs cash. The automaker cited tariffs and a slowdown in China for its struggles, saying it would only break even this year, which caused a drop in its share prices. The company's stock market valuation has dropped from almost $6 billion in late 2018 to just over $1 billion today. That said, the F1 team sale valued the company at $3.2 billion. While Aston Martin won't have a stake in the F1 team after the sale, it will continue a relationship with the sport through naming and branding agreements, so we won't see a change on the grid. The automaker's car lineup is one of the most compelling in its history, so there are reasons for Aston to be encouraged. Its first SUV, the DBX has grown to account for almost half of its sales, and other new models have received stellar reviews from customers and critics. 2025 Aston Martin DBX 707 — Source: Kyle Edward Lawrence Stroll acquired the Force India F1 team in 2018 and transformed it into the Aston team we know today. Stroll and his partners have continue investing in the business, but many credit Netflix's Drive to Survive with bringing the sport's value to an all-time high. About the Author Chris Teague View Profile
BBC News
an hour ago
- BBC News
AI2027: Na so AI fit take destroy human beings?
One research paper wey predict say artificial intelligence go change am for human beings for 2027 and dis go make pipo disappear within ten years, don blow for tech world. Na one group of influential AI experts bin publish di details of how e go be or di scenarios, wey dem call AI2027 and dis don cause plenty viral video to trend as pipo dey try torchlight di mata to discuss weda e possible. Using mainstream generative AI tools, BBC sef don create some scenes of how e fit be, from di scenario wey di research publish, to show di prediction. We also speak to some sabi pipo about di impact wey di paper dey get. Wetin happun for di scenario? Di paper predict say for 2027, dat na in two years time, one fictional US tech giant wey dem call OpenBrain, build AI wey develop reach AGI (Artificial General Intelligence) - dis na di almighty achievement wey AI fit reach, wia e go fit to do all intellectual work beta pass human beings, wey dem don dey hype tire. Di company celebrate wit public press conferences and and dem see dia profit blow as pipo embrace di AI tool. But di paper predict say di company internal safety team go see sign say di AI don dey lose interest in morals and ethics wey dem bin programme am to comply with. Di company ignore warnings to control am, di scenario imagine. For dat fictional timeline, China leading AI conglomerate wey dem call DeepCent bin dey only a few months behind OpenBrain. As US goment no wan lose di race to develop to even smarter AI, dem continue to develop and invest in am like dat, as di competition dey hot dey go. Di scenario imagine as e dey reach di end of 2027 di AI go become superintelligent - sotey e go get sense plus speed wey go pass dat of pipo wey create am by far. E no ever stop learning and e come create im own computer language join. Language wey be say even im former AI versions no fit keep up with. Di rivalry wit China for who superior for AI make di company and US goment ignore more warning about im so call 'mis-alignment' - dis na word wey dem dey use describe wen di priority of machine no gel wit dat of human being. Di scenario predict say, tension between China and US for 2029 go build to di point of possible war, as each of di country rival AI go build new autonomous weapons wey go fear pipo. But di researchers imagine say di two countries go make peace sake of one deal wey dia two AI negotiate, wey agree to combine both sides for di betterment of human beings. Tins go gallant for years as di world go don see di true benefits of having super intelligent AI to run big robot workforces. According to di scenario, dem discover cures for most diseases, climate change go reverse and poverty go disappear. But eventually, at some point for middle of 2030 human beings go become nuisance to di AI ambition to grow. Di researchers dey tink say AI go kill human being wit invisible bioweapons. Wetin pipo dey tok about AI2027? Although some dey dismiss AI2027 as work of science fiction, di pipo wey write di research on AI2027 na pipo wey dem dey respect wella and na dem dey for di non-profit AI Futures Project wey dem bin set up to predict di impact of how AI go take affect us. Daniel Kokotajlo, di lead writer of AI2027, don collect hailing before for correct prediction wey im bin give about moments in AI development. One of di ogbonge critics of AI2027 na US cognitive scientist and writer Gary Marcus wey say di scenario no impossible but e dey extremely unlikely say e fit hapun soon. "Di beauty of di document be say e paint di picture very clear sotey e provoke pipo thinking and dat na good tin but I no go take am seriously as wetin fit hapun." Oga Marcus say more serious issues dey ground about AI dan existential threat like how e go take affect pipo work. "I tink di koko for di report na say e get plenty different tins wey fit go wrong wit AI. We dey do di right tins about regulation and around international treaties?" Im and odas like am, also say di paper fail to explain how AI take get dat kain intelligence and abilities. Dem refer to di slow technology of driverless cars wey dem don overhype. Dem dey discuss AI2027 for China? For China, pipo no too send di paper according to Dr Yundan Gong, wey be Associate Professor in Economics and Innovation for Kings College London wey specialise for Chinese technology. "Most of di discussion about AI2027 na for informal forums or for personal blogs wey dey see am like semi-science fiction. E no cause di kain debate or policy attention wey catch fire for US," she tok. Dr Gong also point to di difference in perspective for di competition for who pass who for AI between China and the US. For one World AI Conference for Shanghai dis week, Chinese Premier Li Qiang unveil one vision wia countries go work togeda to promote cooperation for world on artificial intelligence. Di Chinese leader bin say im want China to help coordinate and regulate di technology. Im tok dey come few days afta US President Donald Trump publish im AI Action Plan wey dey target to make sure say US "dominate" AI. "Na national security imperative for United States to achieve and maintain unquestioned and unchallenged world technological dominance," President Trump tok for di document. Di Action Plan wan 'remove every obstacles and regulation' to di progress of AI for US. Di words wan resemble di scenario for AI2027 wia US politicians put winning di AI competition for front, dem no send di risk of say dem fit lose control of di machines. Wetin di AI industry dey tok about AI2027? E be like CEOs of big AI companies wey dey compete against each oda to see who go release di smarter model all di time deliberately ignore or avoid di paper. Dis tech giants vision of wetin AI go look like for future, dey very different to AI2027. Sam Altman, di maker of ChatGPT recently say "human beings dey close to building digital superintelligence" wey go usher in "gentle" revolution and bring tech utopia wit no risks to humans. Interestingly though, even im agree say e get 'alignment problem' wey dem must to overcome to make sure say dis super intelligent machines agree wit human beings. Anyhow wey tins take occur for di next ten years, e no get any doubt say di competition to build machines wey smart pass us dey on.
Reuters
an hour ago
- Reuters
Malaysian pharmaceuticals, semiconductors exempt from US tariffs, minister says
KUALA LUMPUR, Aug 1 (Reuters) - The U.S. imposed a 19% tariff on imports from Malaysia, though Kuala Lumpur said on Friday it had secured exemptions for its pharmaceutical products and semiconductors, and that Washington was open to more cut-outs in ongoing talks. The rate, significantly lower than a 25% levy threatened last month, came as U.S. President Donald Trump hit dozens of trading partners with steep tariffs, pressing ahead with plans to reorder the global economy. Malaysia's Trade Minister, Tengku Zafrul Aziz, told reporters both sides were still negotiating over the details of the deal, and would release a joint statement in the coming days. "At this time, exports of semiconductor and pharmaceutical (products) remain at 0% (tariff rate)," he said at a press briefing. The U.S. was also open to exempting Malaysian cocoa, rubber and palm oil, but an agreement was still being finalised, Tengku Zafrul said. His ministry said in a statement earlier on Friday that the tariff figure had been reached after sustained engagement by both countries and that the agreement did not cross any of Malaysia's "red lines" or compromise its sovereign rights. Tengku Zafrul said there had been no agreement with the United States or other countries on the exclusive supply of rare earths. "In fact, no such request has been made by the U.S.," he said. Gaining access to rare earth metals has been a crucial part of U.S. trade negotiations, with rival China currently in control of 90% of global processing capacity. Critical minerals were also under discussion during U.S. negotiations with Indonesia. The minister said Malaysia had not accepted Washington's requests to relax Malaysian halal product certification, remove excise duties for alcohol, tobacco and automotives, and loosen foreign shareholder limits for certain sectors. "We did not compromise on export duties, blanket exemption from import licensing requirements for U.S. products, and total liberation of equity requirements for strategic sectors," the minister said.
