Fitch: Chinese banks almost certain to face credit risk

23 June 2010

Banks in China are more likely to be affected by credit risk in the future as a result of increased lending, according to a new report.

Analysts at Fitch Ratings noted that the majority of loans issued by financial institutions in the country had gone to real estate and local government projects.

Charlene Chu, a Beijing-based director at the company, claimed that both of these were likely to have "questionable returns over the medium term", reports Bloomberg News.

In a bid to combat the problem, policymakers in the country have unveiled proposals to limit the total value of new loans issued throughout 2010 to 7.5 trillion yuan ($1.1 trillion), a decrease of 22 per cent compared to last year.

"Chinese banks' financial positions are more strained than it appears," Ms Chu commented.

Earlier this week it was announced by Chinese vice president Xi Jinping that the country is keen to agree on a free trade deal with Australia, which he said would prove to be "mutually beneficial" for both parties involved.

By Tony Aynsley

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