China banker sees bad loans rising in 2009 - paper

BEIJING (Reuters) - Chinese banks may suffer from increasing bad loans next year as they are asked to lend more aggressively to help bolster economic growth, a top banker said in remarks published on Friday.

In a bid to prevent an abrupt slowdown, Beijing has removed quota limits on commercial lenders and encouraged them to extend more loans to fund companies' investments.

"With drooping economic growth, banks are indeed facing the problem of non-performing assets," said Zhu Min, vice president of Bank of China (3988.HK) (601988.SS).

He predicted that China's annual economic growth could fall sharply to about 4.8 percent in the fourth quarter from 9 percent in the third quarter.

"Bad loans are quite likely to rise when banks lend out money more forcefully," he was quoted by the Chinese Securities Journal.

But he dismissed the view that sour assets would pose a grave problem as banks were now much stronger in managing risks.

The bad loan ratio at China's commercial banks dropped to 5.49 percent at the end of September from 6.16 percent at the start of the year.

But banks' non-performing loan ratios could rise 0.99 percentage point as the economy slows by every 1 percentage point in annual growth, Wen Bin, a researcher at BOC, wrote in the same newspaper.

So if China's economic growth drops to 9.9 percent this year from 11.9 percent in 2007, Chinese banks' bad loan ratios would climb by 1.98 percentage points, he wrote.

He calculated that it would mean banks had to set aside about 594 billion yuan ($86 billion) as provisions, well above 450 billion yuan of total profits for listed Chinese banks.

($1 = 6.88 yuan)

(Reporting by Eadie Chen, Editing by Jacqueline Wong)

(eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net)) Keywords: CHINA BANKS/LOANS