Causes for Non-Performing Assets in Large Commercial Banks
Author | Zhou Xiaochuan |
Reform on large commercial banks was decided during the third plenary session of the CCP’s 14th National Congress in 1993. At the time, large commercial banks’ reports showed 25% of non-performing assets; the market estimate at about 35-40%. Some professional experts even suggested that large commercial banks had more than 50% of non-performing assets.
According to analysists, large commercial banks’ non-performing assets were created by government interference, a poor legal environment, the banks’ poor clientele management, and the lending culture at the time. Of course, poor corporate governance and management, pressure from the financial market, lagging financial market development, insufficient external supervision, and cracks in the evaluation mechanism were also causes for the high percentage of non-performing assets.
Specifically, 30% of large commercial banks’ non-performing loans are created by government interference from both the central and local levels. About 30% of the non-performing loan is from support from state-owned enterprises. Approximately 10% is caused by an inadequate legal environment, poor respect for the law, and weak law enforcement. Another 10% is caused by government’s closing and restructuring of some industries (including the military industry). Generally, 20% of non-performing loans are caused by large commercial banks’ ineffective credit management.
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