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Asset quality of China's city commercial banks worsens most in Q2

The asset quality of Chinese city commercial banks worsened the most among the nation's lenders in the second quarter from the previous quarter, as slowing economic growth and global trade friction continued roiling the banking system.

The nonperforming loan ratio of city commercial banks in China rose to 2.3% in the second quarter from 1.88% in the first, making it the highest level for this group of lenders since the fourth quarter of 2008, according to data from the Chinese central bank.

As of end-June, the NPL ratio for rural commercial banks, a group still reporting the poorest asset quality among Chinese lenders, improved to 3.95% from 4.05% in the previous quarter. Over the same period, the ratio for large state-owned banks and joint-stock banks dropped to 1.26% and 1.67%, respectively, from 1.32% and 1.71%.

Bad loans among China's commercial banks totaled 2.24 trillion yuan in the second quarter, up from 2.16 trillion yuan in the first quarter and 1.96 trillion yuan in the second quarter of 2018. City commercial banks accounted for 16.87% of such borrowings in the second quarter, up from 13.76% in the first quarter.

Among city commercial banks, the liquidity problem faced by Bank of Jinzhou Co. Ltd. and Baoshang Bank Co. Ltd. in recent months have sparked concerns over asset quality risks. In July, the Hong Kong-listed Bank of Jinzhou announced a restructuring that saw state-run financial institutions take stakes in the lender to help resolve its bad loan problem, while Baoshang Bank was taken over by the central government due to rising liquidity and credit risks.

China's overall loan growth for the second quarter slowed to 13.00% from 13.70% in the first. As of end-June, around 17.76% of new loans were priced below benchmark interest rates, up from 17.71% in May and 9.93% a year ago.

As of Aug. 22, US$1 was equivalent to 7.08 Chinese yuan.

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