China watchdog warns of bad debts

BEIJING: China on Tuesday warned domestic banks were under pressure from growing bad debts after rampant lending to government investment units, the property sector and other industries last year.

The China Banking Regulatory Commission issued the warning in its annual report for 2009, when banks lent 9.6 trillion yuan (1.4 trillion dollars), fanning inflationary pressures and raising fears of economic overheating.

“We are facing negative factors which could influence the smooth operation of the banking sector,” the report said.

It cited “the increasing pressure of an non-performing loan rebound, potential credit risks associated with lending to local government financing platforms, the real estate sector and industries with excess capacity”.

The banking watchdog also warned the global economic recovery was likely to be “slow and tortuous”.

Outstanding non-performing loans reached 426.5 billion yuan at the end of last year, down from 486.5 billion a year earlier, the report showed.

But loans classified as losses rose to 55.8 billion yuan from 49.5 billion a year earlier.

Worried about an explosion in bad loans and inflation, the government has clamped down on lending by raising the amount of money banks must keep in reserve and setting a loan target of 7.5 trillion yuan for this year.

In a sign the measures could be working, new loans in May reached 639.4 billion yuan, down from 774 billion yuan in the previous month, official data showed. -- AFP