China Bad Debt May Reach 60% of Bank Equity, Credit Suisse Says

Loan losses at Chinese banks may climb to levels equivalent to 60 percent of their equity capital as real-estate companies and local governments fail to repay debts, according to Credit Suisse Group AG.

Nonperforming loans will probably increase to 8 percent to 12 percent of total debt in the “next few years,” causing losses amounting to 40 percent to 60 percent of Chinese banks’ equity, Hong Kong-based analysts led by Sanjay Jain at Credit Suisse wrote in a research report dated Oct. 12. Jain cut 2012 and 2013 profit estimates by as much as 25 percent and maintained an “underweight” rating on the industry.