China banks face soaring sour loans in 2012 -paper

BEIJING Tue Nov 6, 2012 9:49pm EST

BEIJING Nov 7 (Reuters) - China's top banks may see their bad loan ratios triple in size by the end of 2012 as the effects of economic slowdown are felt, likely spurring the repackaging and sale of impaired assets, the official Financial News said on Wednesday.

The paper, run by China's central bank, cited a report by Orient Asset Management Corp - one of four firms charged with cleaning up bad debts at China's banks - which said bad debts could soar in the steel, ship building and solar sectors as well as among exporters, local governments and property developers.

"China's outstanding non-performing loans (NPLs) as well as the average NPL ratio are likely to rise," the newspaper said, citing the report.

The risk of a rise in bad loans comes as banks face pressure to increase capital under stricter international banking rules and raises the urgency of NPL disposal, the report said.

In the Orient survey of Chinese bankers, some 69.4 percent believed the average NPL ratio for Chinese banks - now just under 1 percent - could rise to 1-2 percent by the end of 2012 while 20.6 percent believed it could climb to 2-3 percent.

A total of 53.6 percent of respondents believed China's total NPLs would rise by less than 10 percent in 2012, while 28.7 percent of them believed the rise could be 10-20 percent.

Many analysts suspect the real NPL ratio for Chinese banks could be higher than the official 0.97 percent rate, especially given the sharp slowdown in the economy this year.

The NPL ratio in China's entrepreneurial hub of Wenzhou has more than doubled to 3 percent this year, according to state media reports.

China's annual GDP growth in the third quarter of 2012 was its slowest since the first quarter of 2009, with the 7.4 percent expansion below the government's target of 7.5 percent and well short of 2011's full year growth of 9.2 percent.

Economists polled by Reuters expect China's growth in 2012 to be its slowest since 1999 - the year Beijing set up Huarong, Cinda, Great Wall Asset Management Corp, and Orient to take over 1.4 trillion worth of non-performing loans from its state-owned banks in preparation for their stock market listings.

China's top five banks - Industrial and Commercial Bank of China Bank of China, China Construction Bank and Agricultural Bank of China and Bank of Communications - could all roll out NPL sales.

The size of each NPL sale could between 1-5 billion yuan ($160-$800 million), the report said.

Chinese banks stopped large-scale bad loan sales after 2006 and the existing bad loans at AMCs are drying up after years of debt resolution, the newspaper said.

Golman Sachs and Morgan Stanley have been among foreign banks actively buying Chinese distressed assets.

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