Bloomberg News

China Banks' First-Half Bad Loans Ratio Falls to 7.5%

August 21, 2006

China's state-owned lenders reported a drop in their non-performing loans in the first six months of 2006, as improved management and a government push to tighten lending rules took effect and made the industry healthier.

The bad loans ratio fell 1.1 percentage point to 1.28 trillion yuan ($160.7 billion), or 7.5 percent of total credits among China's urban and rural lenders as of June 30, the China Banking Regulatory Commission said in a statement on its Web site.

Non-performing loans among overseas lenders operating in China dropped 160 million yuan to 3.66 billion yuan, or 0.9 percent of total credits, the regulator said.

Chinese banks have been reducing their bad loans and boosting capital this year, answering the regulator's push to strengthen their management to sell shares locally and abroad in preparation for competition with HSBC Holdings Plc and other overseas lenders. Bank of China Ltd. (3988), China's second-largest bank, raised 20 billion yuan selling local-currency shares in June.

Bad loans among Chinese banks that had shareholders, so- called joint-stock banks, fell by 25.2 billion yuan in the first- half to 122 billion yuan, while the bad loan ratio fell 1.1 percentage point to 3.1 percent.

Industrial & Commercial Bank of China (601398), Bank of China, China Construction Bank and Agricultural Bank of China --the country's four biggest state-owned lenders -- cut their combined bad loans to 1.06 trillion yuan at the end of June, a reduction of 16.6 billion yuan. Their combined bad loan ratio was 9.5 percent, down 1 percentage point from the end of 2005, the regulator said.

Bank Fraud

The banking regulator uncovered 480 cases of fraud among domestic lenders in the first half, about 16 percent fewer than the same period last year, the statement said. Banks also thwarted 242 attempts at fraud in the first six months.

China's regulators removed 2,328 bank executives since 2005 for fraud and other illegal activities involving 8.2 billion yuan, the regulator said on its Web site on Aug. 2.

Several senior bank executives including Liu Jinbao, former chief executive of Bank of China's Hong Kong operations, and Wang Xuebing, who used to head China Construction Bank, are among those sentenced to prison on corruption charges in recent years.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Bruce Grant at bruceg@bloomberg.net


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