Bad loans to stay manageable: Bank of China exec

DAVOS, Switzerland (Reuters) - China's state lenders will not see any major increase in their non-performing loans (NPLs) this year even as the economic downturn bites, an executive at Bank of China said on Wednesday.

Chinese bank lending surged in November and December in response to government efforts to pump-prime the world's third largest economy. This added to analysts concerns that new bad lending decisions would compound growing problems with existing loans.

Zhu Min, executive vice president of Bank of China, acknowledged that bad debt was likely to rise across the banking sector as economic growth slows. The economy grew by 9 percent in 2008, the weakest pace in seven years.

"Yes, you will see some NPL increase, but it's not coming back in a big way. It's manageable, it will not cause a big financial impact for the major banks," Zhu told Reuters on the sidelines of the annual meeting of the World Economic Forum in the Swiss ski resort of Davos.

Zhu said that even though banks would be making loans in support of the government's 4 trillion yuan ($585 billion) stimulus package, the improved risk management systems put in place as part of reforms in the past several years would hold them in good stead.

"The whole banking sector will do this according to its own rules and by its own risk management process. I think today, all the banks are very careful -- they review those projects and make their own decision, decide what to do and what not to do," he said.

Loan quality was indeed deteriorating among export-orientated manufacturing firms, as well as in resource sectors, including aluminum and copper, that face overcapacity, Zhu said.

Bank of China's limited exposure to property developers -- they have borrowed about 160 billion yuan, or less than 7 percent of BOC's loan book -- meant the bank was not likely to take a big hit from a weakening real estate industry, Zhu said.

Zhu added that the bank was still on the lookout for further strategic buys overseas, but that it would focus on picking up specific services or products that it could develop and then bring back to the Chinese market.

The bank last year bought a small hedge fund in Switzerland and it has also bought an aviation leasing company in Singapore.

"We're not in the position to run a local bank in a foreign country, so we seize opportunities. We're more looking for the products," he said.

($1=6.84 yuan)

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(Reporting by Jason Subler)