Bad loan ratio of 2% is 'reasonable'

08:41, December 23, 2010      

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A bad loan ratio at 2 percent for Chinese banks is tolerable after factoring in local government debt and tightening measures in the real estate sector, the country's top banking regulator said yesterday.

"As a developing country, a 2 percent non-performing loan ratio is considered realistic and reasonable," Liu Mingkang, chairman of the China Banking Regulatory Commission, was quoted as saying by Caixin Online.

But Liu cautioned that local government-backed financing vehicles pose the biggest risk to the country's banking system.

The bad loan ratio of Chinese banks stood at 1.2 percent at the end of September.

Liu brushed off concerns about risks from real estate development loans or individual mortgages, noting that the risks in the sector are still under control. The concern in the real estate sector is on land reserve loans, which refer to the local governments' financing arm again, he pointed out.

"The most worrying issue at this point is loans to land reserve centers," said Liu, referring to land departments set up by local governments, which often obtain short-term loans from banks to finance land purchases and new developments.

The country's big five banks said they have already tightened loans to developers.

"Previously, developers could enjoy a benchmark or even discount rate," said a credit officer at one of the banks, who did not want to be named. "However, big-name developers have to face a premium on loan rates while small developers are shut off from getting loans."

Source: Shanghai Daily
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