Tighter controls cut banks' bad loansCHINESE banks reduced bad loans in the first quarter as improved management and a government push to tighten credit oversight made the industry healthier.
The combined bad-loan ratio at China's state-owned banks, joint-stock banks, city and rural lenders and foreign banks dropped to 6.63 percent as of March 31 from 7.09 percent three months earlier, the China Banking Regulatory Commission reported on its Website yesterday. Total bad loans amounted to 1.25 trillion yuan (US$163 billion).
Banks have trimmed non-performing loans as they improved oversight and the fastest economic growth in a decade bolstered clients' finances, Bloomberg News reported. The government, which spent almost US$500 billion bailing out banks after decades of state-directed lending went awry, aims to cut the bad-loan ratio to below five percent.
China's five biggest state-owned lenders had 1.06 trillion yuan in bad loans at the end of the first quarter, representing 8.2 percent of their total advances.
China Citic Bank Co, China Merchants Bank Co and 10 other joint-stock lenders had non-performing loans of 100 billion yuan, or a 2.8 percent ratio. Bad loans at foreign banks dropped 0.18 percentage point to 0.6 percent, or 3.1 billion yuan.
Bad loans at Chinese banks have fallen as a result of government bailouts rather than because of better governance, Tang Shuangning, deputy chairman of the CBRC, said last month. Improving management, governance and personnel practices and stepping up product innovation will be key in the next stages of banking reforms, he said.
China has spent 3.5 trillion yuan - equal to a sixth of 2006 gross domestic product - bailing out and recapitalizing state-owned banks since 1998, according to an estimate by Moody's Investors Service. The bill may exceed five trillion yuan after bad loans are taken off the books at the Agricultural Bank of China and other, smaller banks.
China's economic growth accelerated to 10.7 percent in 2006, the fastest pace in more than a decade, fueling demand for loans and boosting financial assets. Banks had 4.6 trillion yuan in assets at the end of the first quarter, up 17.2 percent from a year earlier.