Bloomberg News

China State Banks' Bad-Loan Ratio Declines to 9.3%

October 23, 2006

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

The combined bad-loan ratio at the nation's five biggest banks, all of them controlled by the government, fell 1.2 percentage points to 1.1 trillion yuan ($139 billion), or 9.3 percent of total credits, as of Sept. 30, the China Banking Regulatory Commission said in a statement on its Web site.

Non-performing loans at the nation's 12 mid-sized commercial banks declined 30.5 billion yuan to 116.8 billion yuan, or 2.9 percent of all lending, the regulator said.

Chinese banks have been reducing bad loans and boosting capital this year, answering the regulator's push to strengthen their management in preparation for selling shares locally and abroad. The government is urging domestic banks to further carve out soured debt in the fourth quarter in expectation of competition from HSBC Holdings Plc and other overseas rivals.

The banking regulator uncovered 724 cases of irregularities, including fraud, among domestic lenders in the first nine months, about a fifth fewer than in the same period last year, the statement said.

Medium- and long-term loans grew by 21.4 percent in the nine months to 10.9 trillion yuan, increasing potential credit and liquidity risks, the regulator said.

The central bank twice this year boosted the percentage of deposits banks must set aside as reserves to keep lending growth in check. It also raised lending rates and strengthened so-called ``window guidance,'' telling financial institutions to curb lending to some industries.

To contact the reporter on this story: Luo Jun in Beijing at jluo6@bloomberg.net

To contact the editor responsible for this story: Ben Richardson in Hong Kong at brichardson8@bloomberg.net


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