Report: China's top banking regulator warns of increasing bad debt risks

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China’s banking sector, as a result of slowing economic growth and rising bad debt charges, is facing increased risks.

According to reports from Reuters Shang Fulin, China’s top banker and head of the China Banking Regulatory Commission (CBRC), told members of a teleconference earlier this month that the sector currently faces “rising credit risk from real estate, local government debt and unconventional forms of finance”.

Within his speech Shang noted that commercial banks’ non-performing loans jumped to 982.5 billion yuan during the March quarter, up 139.9 billion on the same level a year earlier, bringing the sectors bad debt ratio up to 1.39%.

The quarterly increase also represents 56% of the increase recorded in bad debts throughout 2014.

He said more than 30% of loans to local governments used land or proceeds from land sales as collateral, something that could see non-performing loans rise as a result of slower sales growth.

To assist in managing the increased risks, Shang urged financial institutions to cooperate with local governments regarding debt issues, and also called for effective measures to prevent a liquidity crunch in the real estate sector, including allowing borrowers to roll over their debt.

You can read the full Reuters report here.

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