Perilous situation: More bad loans face Chinese banks

The souring Chinese economy continues to dent the bottom line of Chinese banks.

Bad loans in the books of Chinese commercial banks rose 5% to US$68 billion in 4Q2011 from US$64.8 billion in 3Q, according to a recent report by the industry regulator, the China Banking Regulatory Commission.

This is the first time the bad loan ratio has increased quarter-on-quarter since 2005.

Bad loans accounted for 0.96% of total lending, up from 0.95% from 3Q and 0.17% lower year-on-year. Analysts attributed the bad loan spike to pressures banks face to maintain asset quality as the Chinese economy decelerates.

Chinese banks are facing a tough battle to keep a lid on bad loans as China’s economic expansion cools and the housing market contracts under strict government restrictions.

Analysts said small businesses, which are prone to failure in adverse economic conditions, and property developers hammered by government curbs account for a sizeable share of bad loans.