Bad debt may rise as much as 10 percent this year, taking the ratio of non-performing loans to 1 percent to 2 percent of the total by the end of 2012, China Orient said yesterday, citing a survey of commercial banks, asset management firms, investors and intermediaries done in June. The pace at which bad loans increase may accelerate if concerns about a rebound in inflation leads China to tighten monetary policy, said the company, which buys, manages and disposes of bad debt.
Shares of China’s biggest state-owned banks have trailed benchmarks in Hong Kong and Shanghai on concern they’ll be saddled with unpaid loans from a record $2.8 trillion lending boom orchestrated by the government to combat the global financial crisis. Bad loans at the four biggest banks increased by 2.1 billion yuan ($337 million) in the third quarter from the previous three months.
Real estate is the major source of bad loans at Chinese lenders this year, China Orient said. A 30 percent to 40 percent drop in housing prices could result in losses that Chinese banks wouldn’t be able to absorb, it said, without giving details.
Industrial and Commercial Bank of China Ltd. (3988) has declined more than 8 percent in Shanghai trading this year, compared with a 4 percent drop in the benchmark Shanghai Composite Index. Shares of China’s biggest lender have risen in Hong Kong by about 12 percent as the Hang Seng Index gained 18 percent.
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