China's four main commercial banks (Bank of China, China Construction Bank, Industrial and Commercial Bank of China and the Agricultural Bank of China) control more than 65 per cent of China's loan and deposit portfolios. Their bad loan portfolio amounts to US$500 billion, 24.13 per cent of total outstanding loans to March 2003. By comparison, Australia's major banks had a non-performing loan ratio of just 0.8 per cent at the end of 2002.
However, there have been steps taken to address this serious issue of bad debts. The larger banks are moving forward rapidly, while some of China's smaller banks are said to have as many bad debts on their balance sheets as they have hidden and festering under a desk somewhere.
There has been considerable growth in the retail loans sector for many Chinese banks. One of the fastest-growing sectors of retail loan services (behind home and car loans) is credit extension for business start-ups.
Indicative of the growth in this area is the Bank of China's Shanghai branch, which recorded 107 per cent growth in the first five months of this year.
Many hope the bad debt cloud will also rise as authorities get serious about their clean-up efforts. China has recently announced its first-ever dedicated banking regulator, the China Banking Regulatory Commission ("CBRC"), formed to supervise the clean-up of its bad loan nightmare and the lifting of capital adequacy ratios to international standards, in line with the Basil Accord.
The commission president, Liu Mingkang, is already calling for a bank bail-out, which if enacted, will be China's third in six years.
