A Study of the Impact of Non-Performing Loans on the Price-to-Book Ratio of Financial Companies

Research Article
Open access

A Study of the Impact of Non-Performing Loans on the Price-to-Book Ratio of Financial Companies

Sihan Cheng 1*
  • 1 New Channel-UIBE Qingdao A-level Centre    
  • *corresponding author sihancheng1115@outlook.com
AEMPS Vol.189
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-179-2
ISBN (Online): 978-1-80590-180-8

Abstract

This study investigates the impact of non‑performing loan (NPL) ratios on the price‑to‑book (P/B) ratios of financial institutions, using Ping An Insurance Company of China as a case study. Based on data from 2018 to 2024 and examining landmark real‑estate non-performing loan events—such as the defaults Baoneng Group and China Fortune Land Development—the research identify a clear three‑phase dynamic: (1) Stabilization (2018–2020), when NPL ratios remained below 2% and P/B ratios hovered between 1.8 and 2.2; (2) Divergence (2021–2023), marked by NPL surges from 1.8% to 6% alongside a steep P/B decline from 2.0 to 0.5; and (3) Partial Recovery (2024), with NPLs retreating to 4% and P/B ratios stabilizing near 1.0. Empirical analysis confirms a significant negative correlation between rising NPL ratios and P/B ratios, driven by increased loan‑loss provisions, asset impairments, and deteriorating market sentiment. These findings highlight the importance of robust credit risk management and early warning mechanisms to preserve asset valuations. The study concludes with policy recommendations for financial institutions and regulators, including enhanced risk monitoring, diversified credit exposures, and strengthened supervisory frameworks to mitigate the adverse valuation effects of non‑performing loans.

Keywords:

Non-Performing Loan, Price-to-Book Ratio(P/B), Real Estate Sector, Three Red Lines Policy, Risk Transmission

Cheng,S. (2025). A Study of the Impact of Non-Performing Loans on the Price-to-Book Ratio of Financial Companies. Advances in Economics, Management and Political Sciences,189,61-65.
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References

[1]. Chu, X., Deng, Y., & Tsang, D. (2023). Firm leverage and stock price crash risk: The Chinese real estate market and three-red-lines policy. The Journal of Real Estate Finance and Economics, 1-39.

[2]. Jia, J., Chen, J., & Yang, Y. (2025). Bond default of super-large real estate company and government debt risk. International Review of Financial Analysis, 104158.

[3]. Banking, C. (2017). Insurance Regulatory Commission (CBIRC)(2021). Circular of the General Office of the China Banking and Insurance Regulatory Commission on the Issuance of Measures for the Management of Project Companies of Financial Leasing Companies, (143).

[4]. Brei, M., & Schclarek, A. (2013). Public bank lending in times of crisis. Journal of financial stability, 9(4), 820-830.

[5]. Chen, K., & Wen, Y. (2017). The great housing boom of China. American Economic Journal: Macroeconomics, 9(2), 73-114.

[6]. Ambarawati, I. G. A. D., & Abundanti, N. (2018). Pengaruh Capital Adequacy Ratio, Non Performing Loan, Loan To Deposit Ratio Terhadap Return On Asset (Doctoral dissertation, Udayana University).

[7]. Agustinus, S., & Yoewono, H. (2022). Pengaruh Ukuran Perusahaan, Reputasi Auditor, Umur Obligasi, Profitabilitas, Likuiditas, Ldr, Npl, Bopo Terhadap Peringkat Obligasi. Ultimaccounting Jurnal Ilmu Akuntansi, 14(2), 264-280.

[8]. Fahlenbrach, R., & Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of financial economics, 99(1), 11-26.

[9]. Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of banking & finance, 21(6), 849-870.

[10]. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.

[11]. Crouhy, M., Galai, D., & Mark, R. (2006). The essentials of risk management (Vol. 1). New York: McGraw-Hill.

[12]. Calomiris, C. W., & Haber, S. (2014). Fragile by design: The political origins of banking crises and scarce credit. Princeton University Press.

[13]. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.

Cite this article

Cheng,S. (2025). A Study of the Impact of Non-Performing Loans on the Price-to-Book Ratio of Financial Companies. Advances in Economics, Management and Political Sciences,189,61-65.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of ICMRED 2025 Symposium: Effective Communication as a Powerful Management Tool

ISBN：978-1-80590-179-2(Print) / 978-1-80590-180-8(Online)
Editor：Lukáš Vartiak
Conference website: https://2025.icmred.org/Bratislava.html
Conference date: 30 May 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.189
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Chu, X., Deng, Y., & Tsang, D. (2023). Firm leverage and stock price crash risk: The Chinese real estate market and three-red-lines policy. The Journal of Real Estate Finance and Economics, 1-39.

[2]. Jia, J., Chen, J., & Yang, Y. (2025). Bond default of super-large real estate company and government debt risk. International Review of Financial Analysis, 104158.

[3]. Banking, C. (2017). Insurance Regulatory Commission (CBIRC)(2021). Circular of the General Office of the China Banking and Insurance Regulatory Commission on the Issuance of Measures for the Management of Project Companies of Financial Leasing Companies, (143).

[4]. Brei, M., & Schclarek, A. (2013). Public bank lending in times of crisis. Journal of financial stability, 9(4), 820-830.

[5]. Chen, K., & Wen, Y. (2017). The great housing boom of China. American Economic Journal: Macroeconomics, 9(2), 73-114.

[6]. Ambarawati, I. G. A. D., & Abundanti, N. (2018). Pengaruh Capital Adequacy Ratio, Non Performing Loan, Loan To Deposit Ratio Terhadap Return On Asset (Doctoral dissertation, Udayana University).

[7]. Agustinus, S., & Yoewono, H. (2022). Pengaruh Ukuran Perusahaan, Reputasi Auditor, Umur Obligasi, Profitabilitas, Likuiditas, Ldr, Npl, Bopo Terhadap Peringkat Obligasi. Ultimaccounting Jurnal Ilmu Akuntansi, 14(2), 264-280.

[8]. Fahlenbrach, R., & Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of financial economics, 99(1), 11-26.

[9]. Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of banking & finance, 21(6), 849-870.

[10]. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.

[11]. Crouhy, M., Galai, D., & Mark, R. (2006). The essentials of risk management (Vol. 1). New York: McGraw-Hill.

[12]. Calomiris, C. W., & Haber, S. (2014). Fragile by design: The political origins of banking crises and scarce credit. Princeton University Press.

[13]. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.

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