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Banks face asset quality test
Aggregated Source: Shanghai Daily: Business

CHINESE banks will face asset quality challenges this year as bad loans continued to rise in the first quarter after the big five lenders wrote off 25 billion yuan (US$4 billion) of sour loans last year, Deloitte Touche Tohmatsu Ltd said.

The bad loans at the 16 listed lenders on the Chinese mainland totaled 424 billion yuan (US$68.2 billion) by the end of March, 21.9 billion yuan more than the end of last year, according to the lenders' financial results for the first three months, Deloitte said in a report released yesterday in Shanghai.

But the bad loan ratio stayed below 1 percent on average.

"Chinese lenders have low non-performing loan ratios compared to their foreign peers because credit assets expanded at a faster pace than the rise in bad loans, which casts a 'dilution effect' (on the bad assets)," said Deloitte.

China's top-five lenders, the Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China, the Bank of China and the Bank of Communications, wrote off 25 billion yuan of bad loans last year, a surge of 110 percent from a year earlier, according to Deloitte.

"The write-off and disposal of non-performing loans will be the primary tool for lenders to reduce pressure from deteriorating assets," said Deloitte.

The bad loans at the big five banks totaled 340.8 billion yuan by the end of March, or 80.4 percent of the listed lenders' total.

The report also said the accumulation of credit risks in local government financing platform, real estate, solar energy, wholesale and retail sectors also weighs on the banks' growth.

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Copyright Shanghai Daily: Business