July 25, 2014 / 10:38 AM / 5 years ago

China's bad loan ratio rises, adding to bank sector worries

BEIJING (Reuters) - Chinese banks’ bad loan ratio rose to 1.08 percent at the end of June from 1.04 percent in March, the banking regulator said on Friday, adding to concerns a slow economy and cooling property market could weigh on banks and brew up financial risks.

The rise in the ratio across the whole banking sector is in line with anecdotal evidence of an increase in bad loans seen recently in some provinces plagued by industry overcapacity. Some independent economists believe the ratio is far higher.

Chinese media reported on Thursday that the value of bad loans in China’s eastern Shandong province surged 25.8 percent between January and June this year.

The China Banking Regulatory Commission (CBRC), in a statement reviewing its work in the first half, urged lenders to control risks.

“Chinese banks must particularly monitor credit risks in the property sector, local government financial vehicles and industries that are suffering from overcapacity problems,” CBRC Chairman Shang Fulin said at an internal meeting, according to the statement.

The CBRC also promised to step up efforts to expand a pilot scheme to develop private banks as part of efforts to open up the financial sector.

Separately, the regulator announced on Friday it had approved the setting-up of three news banks wholly funded with capital from private firms, a step that introduces the first private lenders into a sector dominated by state giants.

Reporting by Aileen Wang; Editing by Kim Coghill and Alan Raybould

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