China Banks’ Bad Loans Rise to Highesst Level Since 2008

Chinese banks’ bad loans rose to the highest level since 2008 in the third quarter as a property slump and an economic slowdown boost the odds that soured credit will keep climbing.

Nonperforming loans rose 72.5 billion yuan ($11.8 billion) from the previous quarter to 766.9 billion yuan, the China Banking Regulatory Commission said in a statement today. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier.

Weakness in the economy and extra competition for lenders because of financial deregulation may weigh on banks’ profitability. In signs that the slowdown may be prolonged, factory output expanded at a slower pace in October, and a person with knowledge of Communist Party talks said leaders had discussed lowering the nation’s growth target for 2015.

Bad loans are “likely to rise for the next few quarters as a result of the slowdown in the Chinese economy, but I think the systemic risk should be contained,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp., said before the statement.

Banks’ bad-loan coverage ratio, a measure of reserves for soured credit, fell to 247.2 percent as of Sept. 30 from 262.9 percent in June. Their capital adequacy ratio, a measure of financial strength, increased to 12.93 percent from 12.4 percent three months earlier.

Leaders have discussed lowering the 2015 growth target from this year’s 7.5 percent goal, the person said this week. Industrial & Commercial Bank of China Ltd., the world’s largest lender by assets, last month reported its biggest quarterly jump in bad loans since at least 2006.

Stresses in the economy are visible through companies such as Sinosteel Corp., a state-owned miner and steel trader that in September reported financial difficulties. China’s gross domestic product will rise 7.4 percent this year, the least since 1990, according to analysts’ median estimate.

— With assistance by Jun Luo, and Aipeng Soo

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