China Banks Cut Bad Loan Ratio to 5.8% in 1st-Quarter

Chinese banks reduced their ratio of non-performing loans to a record low of 5.8 percent in the first quarter as a growing economy boosted the payment capability of borrowers.

China's state-owned banks, joint-stock banks, city and rural lenders, and foreign banks had a combined 1.2 trillion yuan ($171 billion) of soured debts as of March 31, down 22.8 billion yuan from December, the China Banking Regulatory Commission said in a statement on its Web site today. The bad loans ratio stood at 6.18 percent at the end of last year.

China's 12 publicly-traded banks posted an average 118 percent jump in first quarter profit as the economy expanded more than 10 percent for nine straight quarters, enabling lenders to increase provision coverage for bad loans.

Domestic banks may risk higher bad loans this year due to tighter credit controls and a slowing economy, the regulator warned last month.

The Chinese government is clamping down on loan growth after Premier Wen Jiabao identified overheating and inflation as the two major problems facing the country's economy this year. The central bank raised interest rates six times last year and has boosted the proportion of deposits lenders must hold as reserves to a record 16.5 percent.

``The continued implementation of austerity measures in China, a significant slowdown in the global economy, a surge in raw material costs and high inflation have undoubtedly increased banks' asset quality risks,'' DBS Group Research analysts Jasmine Lai and Sophia Huo wrote in a report yesterday. They expect an average 14 percent increase in non-performing loans at Hong Kong- listed Chinese banks.

Industrial & Commercial Bank of China (601398) Ltd., China Construction Bank Corp. (939), Bank of China Ltd. (3988), Agricultural Bank of China and Bank of Communications, the nation's five-largest lenders, had 1.09 billion yuan of bad loans as of March 31, representing 7.6 percent of their total advances, according to today's statement. Smaller national lenders, known as joint-stock banks, had a bad loan ratio of 2 percent, while city banks had 2.9 percent of their lending unpaid.

Chinese banks increased their assets by more than a fifth in the first quarter to 55.5 trillion yuan, the regulator said in a separate statement today.

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

To contact the editor responsible for this story: Philip Lagerkranser at at lagerkranser@bloomberg.net

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