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Chinese banks prepared for possible bad loan rises

06-03-2011 16:04 BJT

BEIJING, June 3 (Xinhua) -- Banks in China are under pressure to control the quality of their assets, but their bad loan risks might be overstated as banking regulator has introduced stricter requirement to prepare for such, Chinese experts have said.

Chinese banks may see their asset quality fall at some time in the future if the country's monetary tightening policies and liquidity squeezes continue, said Guo Tianyong, director of the Banking Industry Research Center with the Central University of Finance and Economics.

"But their non-performing loan (NPL) ratios will by no means rise to 10 percent," Guo said, rejecting warnings by U.S. credit rating agency Standard & Poor's (S&P) of outlook for Chinese lenders last week.

S&P said they expect cumulative NPLs in China's banking sector to account for 5 to 10 percent of the sector's total loans over the next three years.

S&P are predicting a difficult scenario in which lending rates go up significantly and government support to project the sector's loans turns out to be negligible.

"Their statements are too sensational," Guo said, citing data and precautionary measures by China's banking regulator as reason.

According to the China Banking Regulatory Commission (CBRC), the outstanding NPLs of Chinese commercial banks dipped by 300 million yuan (about 46 million U.S. dollars) from the fourth quarter of last year to hit 433.3 billion yuan by the end of March this year.

The average NPL ratio for Chinese banks stood at 1.1 percent in the first quarter, almost unchanged from last year, according to quarterly bank reports.

"We are aware of the reports about China's banking sector by some foreign rating agencies, but we think some of the remarks were purposely made to tarnish the image of China's banks," said a source close to China's banking regulator, who requested anonymity.

Last month, the CBRC announced stricter regulations for commercial banks in order to help the financial institutions decrease their financial risks.

The CBRC set the minimum capital adequacy ratio (CAR) for banks of systematic significance at 11.5 percent, while the CAR for banks of non-systematic significance was set at 10.5 percent.

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