Chinese Banks Face Rising Credit Risks, Higher Bad Loan Ratios, S&P Says
Chinese banks face rising credit risks and their non-performing loan ratios are likely to climb as the nation’s economy slows and lending for government projects comes due for repayment, according to Standard & Poor’s.
It’s “highly likely” that some loans to local government financing vehicles will turn bad over the next few years, S&P said today. Loans to these entities account for about 18 percent to 20 percent of total lending, the rating company said. S&P kept its “stable” outlook on China’s banking industry, citing “sufficient strength.”
Chinese policy makers are grappling with risks from last year’s $1.4 trillion credit boom that fueled the nation’s comeback from the global recession. The banking regulator aims to cap new loans at 7.5 trillion yuan ($1.1 trillion) this year, down 22 percent from 2009, and has told lenders to report risk exposure to local-government financing vehicles by the end of June to prevent a pileup of bad loans.
China’s annual growth will slow to 8.9 percent in 2011 from a projected 10 percent for this year, according to the median forecasts in Bloomberg News surveys. Growth eased to 10.3 percent in the three months to June from a year earlier, from a pace of 11.9 percent in the first quarter.
Fitch Ratings last week estimated that bank lending in the first half of the year was 28 percent higher than the official 4.6 trillion yuan figure as loans were repackaged into off- balance sheet investment products. The regulator imposed a temporary ban on such “informal securitization” earlier this month, according to Fitch.
In today’s report, S&P forecast the non-performing loan ratio to stay below 10 percent until the end of 2012. At the end of the first quarter, the ratio at all lenders in China stood at 1.4 percent, according to the banking regulator.
China’s five largest state-controlled commercial banks, which include Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after last year’s lending weakened their capital adequacy ratios. Agricultural Bank this month sold $19.2 billion of shares in the world’s largest initial public offering in four years.
--Luo Jun. Editors: Joost Akkermans, Brett Miller
To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net
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