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How High a Non-Performing Loan Ratio could China's Financial System Endure? (No 137, 2015)


——Based on Analysis of Capital Adequacy Ratio

By Zhu Hongming, Research Team on "Analysis of Listed Banks", Research Institute of Finance, DRC

Research Report No 137, 2015 (Total 4822)


Viewing from the perspective of capital adequacy ratio and taking the performances of 21 listed banks as an example, this paper made an estimation of the capability of China's banking system to withstand risks from 2015 to 2020. The findings show that China's banking system on the whole boasts a strong capability to withstand risks and that the orderly resolution of risks contributes to enhancing the capacity to withstand risks. In terms of risk resolution in years of 2015, 2015-2017, and 2015-2020, the ceiling of non-performing loan ratio which listed banks could bear would reach 10.08%, 13.92%, and 18.26% respectively, which amount to 11.27%, 19.47%, and 35.72% of the loan balance at the end of 2014 respectively. Hence, on the one hand, we must build confidence in sticking to the underlying principle of preventing systematic financial risks and keep composure to push ahead with financial reform; on the other hand, we need to ensure the orderly resolution of risks via such measures as maintaining economic stability and preserving financial ecology and meantime make preparations to deal with systematic financial risks as soon as possible.