China's Big Four Banks Reduce Bad Loan Ratio
According to the government's China Banking Regulatory
Commission, China's four largest banks cut their non-performing
loan ratios by more than four percentage points to 22.19
percent in the first six months of the year ending in
June.
This is the same amount as the ratio fell in all of 2002,
and is an encouraging sign for China's struggling banking
sector. The total outstanding loans are 12.95 trillion
yuan by the end of June. These figures are official Chinese
government figures; western banking experts put the unofficial
ratio of bad loans at as high as 50 percent.
China's big four banks are Industrial and Commercial
Bank of China, Bank of China, China Construction Bank
and Agricultural Bank of China. Chinese banking regulators
have given the banks a very aggressive deadline of 2005
to reduce their non-performing loan ratio to 15 percent.
China suffers from a large number of loans made to state-owned
enterprises (SOEs), almost all of which were unpaid and
have since become bad loans. The government encouraged
these loans, which were called "policy loans",
in order to provide employment to workers who would otherwise
be unemployed. But, in many cases, corrupt company officials
siphoned off the money and disappeared, and laid off the
workers anyway, and left the banks holding the bad loans.
According to the commission's report, the main reason
the bad loan ratio fell was because of the rapid growth
of new loans. Theoretically, some of these new loans could
go bad in the future.
Most of the new loans were made to urban consumers, who
have used them to finance home and car loans. The Chinese
government is counting on the growth of China's new urban
consumers to grow the banking sector out of its bad loan
problems. This is the main reason China has not bowed
to US, European and Japanese pressure to revalue the Chinese
yuan upwards.
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