Large state-owned banks in China conservative in recognising NPLs

But NPL formation has moderated since 2H16.

According to UOB Kayhian, large SOE banks are conservative in recognising NPLs. Judging by NPLs/90-day overdue loans, large SOE banks are conservative in recognising NPLs with CCB being the most conservative. Joint stock commercial banks (JSCBs) are more lax in recognising NPLs with SPDB being the worst culprit, followed by Minsheng Bank.

Here's more from UOB Kayhian:

Moderation in NPL formation. NPL formation has moderated in 2016, especially since 2H16, and the moderation persisted going into 1Q17. Contrary to the broader trend of stabilisation in asset quality, BOC and CITIC unfortunately continued to experience a pick-up in NPL formation in 1Q17. BOC was affected by NPL formations at north-eastern China while CITIC was affected by NPL formations at the Bohai Rim and western China.

Asset quality at large SOE banks are much better. On average, NPL formations for JSCBs are 100bp higher in 2016 and 42bp higher in 1Q17 compared with that at large SOE banks. CMB is the only outlier among JSCBs as NPL formation has eased to just 6bp in 1Q17.

Clean-up through write-offs/disposals. CCB (94bp in 2015) and ABC (96bp in 2016) were conservative with write-offs of NPLs. JSCBs were more aggressive to write-off NPLs at 132.3bp in 2016 and 77bp in 1Q17 due to more intense stress on asset quality.