Chinese Banks Dump Bad Debts

Chinese banks holding bad-loan fire sales
It is believed that more Chinese banks are bundling and selling off their bum loans.

The Shandong Province branch of the Agricultural Bank of China in September sold 2.26 billion yuan worth of packaged bad debt; 97 companies had taken out the loans.

Bulk liquidation of bad debt is also gaining traction among small and midsize regional banks.

Leshan City Commercial Bank, in Sichuan Province, on Dec. 27 sold a package of loans that had a 1.84 million yuan book value. Most of the loans were taken out by nonbank financial institutions in the province. The bank has been selling off similar bundles since summer.

According to the China Banking Regulatory Commission, Chinese banks' aggregate outstanding bad debt stood at 563.6 billion yuan at the end of September, a roughly 40% increase from two years earlier.

Despite the sharp growth, the overall bad-debt ratio rose only marginally, to 0.97% from the 0.9% at the end of September 2011. Both domestic and foreign investors suspect there is actually much more bad debt; bank management and Chinese authorities, after all, have discretion over how to categorize sour loans.

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