Huge China bank write-offs

CHINESE banks have written off more than $300-billion (R4.3-trillion) of bad loans in the past three years, a banking official said yesterday.

The news comes as Beijing seeks to reassure investors China is able to cope with its mounting debt problem.

The huge figure resulted from Beijing making credit cheap and easy to receive in a bid to boost growth in the world’s slowing second-largest economy.

But analysts have warned a debt-fuelled rebound might be short-lived and ballooning borrowings risk sparking a financial crisis.

A high-ranking official with the China Banking Regulatory Commission (CBRC), Wang Shengbang, said China’s banks had seen their non-performing loan ratios rise consistently for 4½ years, reaching 1.75% at the end of March. He said the banks were well prepared to handle the losses, and domestic lenders had written off $304-billion (R4.4-trillion) of bad loans over the past three years.

The CBRC made banks set aside more capital from 2011 when the economy was healthy to cater for writedowns in a downward cycle.

China Academy of Social Sciences senior researcher Li Yang said the most worrying risks lay in the non-financial corporate sector, particularly in state-owned enterprises.

China’s government debt ratio was 41.5% of GDP at the end of last year if contingent debt – obligations it was not liable for at present, but could become responsible for -- was included, the finance ministry said.