Chinese banks get serious – risk of bad debts swell
Chinese banks are scrambling to get on top of bad debts they have downplayed for years, cutting off riskier borrowers and further tightening lending terms.
China’s banks keep reporting bad loan levels well below what most analysts consider realistic, but their recent actions suggest the slowing economy may be squeezing borrowers and lenders harder than thought only a few months ago.
China’s fifth-largest lender, Bank of Communications assembled research teams last month to look over the assets of troubled borrowers in Zhejiang province.
Bankers from other major listed lenders said they were further cutting lending to riskier borrowers, in particular smaller private companies.
Lawyers for banks say increasing numbers of transactions fall through because of lenders’ last-minute risk worries.
In March, Reuters reported that Chinese banks had become unsettled by some highly publicized defaults and were toughening terms for highly indebted borrowers or those plagued by overcapacity.
The average bad-loan ratio for Chinese commercial banks reached a three-year high of 1.08% at the end of June, above the regulator’s 1% red line, but still below most analysts’ estimates which range as high as 5%.