China's lenders ordered to check bad loans

BEIJING - China's banking regulator has told major state lenders to check the quality of their loans to prevent bad loans from deteriorating as the economy softens, local media reported on Monday.

The China Banking Regulatory Commission (CBRC) has ordered the country's top five state-owned banks to examine the authenticity and accuracy of the classification of all their loans as of the end of 2011, the Shanghai-based China Business News reported, quoting an unnamed source close to banking regulators.

The results of the banks' self-examination were already submitted to regulators at the end of May, according to the report.

"The move was aimed at exposing credit risks and reflected the regulators' worries over loan quality," the source said.

Chinese lenders saw their non-performing loan (NPL) ratio continue to decrease to 0.94 percent at the end of March, but the value of NPLs grew to 438.2 billion yuan ($69.2 billion), up 10 billion yuan from the end of 2011, CBRC data shows.

The NPL figure was low compared with lenders' total loan loss reserves, which reached 1.26 trillion yuan at the end of March, but banks are likely to face increasing NPLs as economic growth slows, the report said.

The five banks that were ordered to conduct loan checks are the Industrial and Commercial Bank of China, the China Construction Bank, the Bank of China, the Agricultural Bank of China and the Bank of Communications. Their outstanding loans combined to exceed 28 trillion yuan at the end of 2011, more than half of the whole banking sector's total.

China classifies bank loans according to their inherent risks into "pass," "watch-list," "substandard," "doubtful" and "loss" categories, the latter three of which are viewed as NPLs.