China's growing debt problem is affecting its banks' profitability. The country's top five banks have announced that they are writing off $40 billion worth of non-performing assets during the first nine months of the year.

These banks include the Agricultural Bank of China, China Construction Bank, and the Industrial and Commercial Bank of China Limited (ICBC). The Agricultural Bank of China had the worst Non Performing Loan (NPL) ratio of 2.39 percent.

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China is currently dealing with the issue of rampant credit growth in its economy. The government is looking to control the expansion of credit by introducing stringent measures. Banks have been asked to fix their bad debts. In light of the directive, the banks have reported a 54.6 percent year-over-year increase in their bad loan losses. However, their net profit grew by 0.89 percent, excluding one-time financial gains.

The Industrial and Commercial Bank of China Limited (ICBC), one of the biggest banks in China, reported a 1.62 percent increase in its NPL ratio at the end of the third quarter. Its NPL ratio was at 1.55 percent in June. Despite government recommendation, the bank lowered its bad debt provisions from previous 143 percent to 136 percent. China Construction Bank also lowered its provision to 148.8 percent. Bank of Communications reported its provision level at 150.3 percent. According to Chinese regulations, the banks are required to keep their bad debts provisions at a minimum of 150 percent.

According to the South China Morning Post, the average ratio of non-performing loans stood at 1.72 percent as at the end of September. The corresponding figure at the end of June was 1.69 percent.  

TagsAgricultural Bank of China, China Construction Bank, Industrial and Commercial Bank of China Limited