Agency warns on bad loans

Standard & Poor's warned China has to fend off rising bad loans after keeping recession at bay, amid media reports Chinese lenders' non-performing loan ratio increased in the first quarter to 0.99 percent

China Business News reported on Monday that by the end of March, outstanding NPLs stood at 524.3 billion yuan ($84.8 billion), up by 20.7 percent year-on-year and 33.9 billion yuan from the beginning of the year, citing figures from an internal meeting of the China Banking Regulatory Commission.

The amount of bad loans is likely to continue rising, the newspaper quoted Shang Fulin, chairman of CBRC, as saying.

By the end of 2012, outstanding NPLs rose by 64.7 billion yuan to 492.9 billion yuan compared with three months earlier, while the NPL ratio fell 0.01 percentage point to 0.95 percent.

In a report released on Monday, S&P's said bank loans grew almost 60 percent in China in 2009-2010, staving off a recession. A loan surge translates into higher credit risks on banks' loan books, which points to the possibility of rising nonperforming loans.

"If that happens, the government's debt burden will rise as it absorbs some of the cost of these bad loans," it said.

"Chinese policymakers acknowledge the risks associated with rising leverage in recent years. However, they also view such risks as being well under control,'' said Standard & Poor's credit analyst Kim Eng Tan.

Tan said there are official fiscal transfers and ad-hoc measures to help financially weak state-owned enterprises (SOEs). These steps may prevent mass defaults among local government financing platforms, which are companies that borrowed to finance local government-mandated projects.

"Even then, we believe a number of these local government financing platforms will still default. But the systemically important commercial banks are unlikely to be destabilized by these NPLs," he said.

"If NPLs stay low in China, it would not be because outsiders underestimate the credit quality of loans made in 2009-2010. Rather, it would be because they underestimate Chinese authorities' willingness to redistribute resources to ward off mass defaults by government-related borrowers.''