WWW.CQCB.COM:

My question is also about the bad debt reported by banks. Statistics show that as of the end of 2020, NPLs reported by commercial banks reached 3.5 trillion yuan. Industry insiders said the pressure to dispose of NPLs will continue this year. How will such pressure be relieved? Thank you.

Xiao Yuanqi:

The increase of NPLs is dictated by law. As the total amount of assets increases, a corresponding proportion of new NPLs emerge. As I said just now, the NPL ratio dropped slightly last year, but the banking sector still faces pressure to dispose of NPLs.

First, there are some requirements for the disposal process. For example, procedures are different for the transfer of single corporate loans and the bundle transfer of personal NPLs. Also, loans can't be classified as NPAs before the court issues a ruling that is what they in fact are. These are not obstacles to the disposal of NPAs, though they will extend the time required to dispose of them.

Second, profits have declined, and for some banks, the pressure to make provisions will increase a little and they will be less capable of writing off NPLs using provisions. For the banking sector as a whole, provisions are increasing and capacity is rising. However, the structure is somewhat imbalanced and so the profits of some banks have declined relatively fast and they therefore have less resources to draw from for provisions.

Third, we should take a forward-looking approach and estimate potential risks in the increase of NPAs. This doesn't mean that the NPAs reported by banks are bound to increase, however, we need to estimate the risks because banks should be prudent in their operations and think more about possible difficulties that could arise in the future. In the case of NPL increase, banks need to take precautions now and make suitable response plans. For example, they need to introduce precautionary measures to increase necessary resources and they should not sit idle waiting for the risks to occur. Thank you.

Shou Xiaoli:

Thank you, Mr. Liang and Mr. Xiao. Thanks to friends from the media. Today's SCIO press conference is hereby concluded. Goodbye.

Translated and edited by Wang Yiming, Zhang Liying, Zhu Bochen, Li Huiru, Mi Xingang, Zhang Junmian, Liu Jianing, Zhang Rui, Liu Qiang, Lin Liyao, Fan Junmei, Yan Xiaoqing, Guo Yiming, He Shan, Cui Can, Wang Qian, Yuan Fang, Duan Yaying, Yang Xi, Xu Xiaoxuan, David Ball, Geoffrey Murray, and Tom Arnstein. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.