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August 11, 2009

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New loans rise but NPLs drop

THE amount of bad loans in China dropped in the first half of the year despite soaring new credit, the top banking regulator said.

Analysts, meanwhile, said the regulator is expected to vigorously scrutinize the situation to avoid sour loans from appearing in the future.

The outstanding non-performing loans fell to 520.8 billion (US$76.25 billion) at the end of June, down 42.7 billion yuan from the end of 2008, the China Banking Regulatory Commission said on its Website.

"Banks are strengthening risk controls even as credit grew rapidly this year," the CBRC said.

The NPL ratio declined to 1.8 percent by the end of June, down 0.64 percentage point in the period, the CBRC said.

Banks in China extended new yuan loans worth 7.37 trillion yuan between January and June, a jump of 32.8 percent from a year earlier. The lending has already surpassed the 5 trillion yuan target for 2009 that was set at the beginning of the year.

Analysts voiced concerns that the bank loans may have found their way into the property and stock markets and possibly creating future credit risks.

"China's expansionary fiscal policies are causing growing concerns that banks are over-lending to risky projects, industries with over-capacity, and investments in shares and real estate," said Yvonne Zhang, Moody's Investors Service's senior analyst, yesterday.

Chinese banks lent 1.6 trillion yuan for infrastructure projects in the first half in response to the central government's call to boost the economy.

The CBRC was reported to be considering discounting, or even excluding, bank-issued subordinated bonds that are held by other banks in the calculation of capital adequacy ratios.

If it does, it will put a stricter requirement on banks' capital and rein in their funds available for lending.

The banks' minimum capital requirements may be raised to 12 percent from 8 percent now for small- and medium-sized banks.

"Such new rules are remedial measures on the banks' recently increased risk profiles," Zhang said. "The measures would mainly affect less well-capitalized banks."

The People's Bank of China, the central bank, is expected to announce its July monetary data this week.


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