Bank behavior due to a buildup in Chinese nonperforming loans

by Yuchi Xie, Qizhen Ye, Raofeng Guo

We study 33 Chinese banks from December 2009 to December 2020 to examine the moral hazard behavior of Chinese banks from the perspective of nonperforming loans (NPLs). The results show that banks with low returns are more likely to engage in risk-taking behavior and have a high number of NPLs. The government could adopt regulations that would help joint stock banks to be more prudential and encourage city and rural banks to take more risks.