A solar panel factory. (File photo/Xinhua)
The bad debts of China's commercial banks has climbed for the sixth consecutive month, reaching 524.3 billion yuan (US$84.8 billion) as of the end of March. China Securities Regulatory Commission chief Shang Fulin said bad debt and hidden risks would multiply as the Chinese economy slows down.
The amount of the debt has been creeping upward since the fourth quarter of 2011. It continued to set record highs at 22.4 billion yuan (US$3.6 billion) in Q3 of 2012 and 33.9 billion yuan (US$5.4 billion) in Q1 of this year, according to the Shanghai-based First Financial Daily.
Debt issues have, however, been steadily handled over the past ten years as most state-owned banks reduced their non-performing assets before going public and were able to ride the ensuing wave of economic growth.
Most bad debt generated in 2012 came from the steel, photovoltaic, and shipbuilding industries. At least 209 lawsuits involving 23 banks were filed against steel traders in Shanghai over the past month alone. The commission has been aware of the problem since last year and ordered financial institutions to prevent steel traders from using financial instruments to obtain huge loans.
The debt issue was also pronounced in the solar energy sector, which has seen huge losses and failed enterprises. Suntech Power, China's leading PV manufacturing giant and the world's largest solar panel maker, declared bankruptcy in mid-March. It owed more than 7.1 billion yuan (US$1.1 billion) in loans to nine banks in total as of the end of February.
The shipbuilding sector has received less attention but many firms have been suffering from weak foreign demand and overcapacity and have gone bankrupt or undergone restructuring, according to the Shanghai-based First Financial Daily.
Shang said the real problem is bad debt that banks hide by various means such as reloans and restructuring in order to pass the commission's examinations. The priority of the commission is to require banks to identify bad debt and report the quality of assets accurately. Loans overdue by more than 90 days and the amount of bad debt have both increased since the second quarter of last year, according to a source familiar with the issue, suggesting that banks have not been reporting the quality of their loans accurately.
Shang Fulin 尚福林