Chinese Bank Debt Moratorium Masks Risky Lending and Bad Debts

Jinzhou Bank in China showed signs of distress earlier this year, possibly due to links to a troubled billionaire. But its finances seemed healthy, except for high non-performing loans in one small area.

This could indicate a large portion of loans at Jinzhou and other banks are actually bad debts hidden by a covid-era moratorium on recognizing them.

The moratorium coincided with banks being pressured to extend more loans to small firms, even at low interest rates, creating risky lending.

Though small firms struggled in the pandemic, their non-performing loans hardly rose, likely because bad debts were rolled over or renewed.

The fate of this murky pile of debt depends on China's economic recovery. If growth falters, the banking hangover from covid could intensify.