Chinese banks 'to face wave of bad loans'

20 September 2010

Financial institutions in China have been warned to expect to be hit by a wave of bad loans in the near future.

Last year saw Chinese banks extend around double the amount of loans they provided in 2008 and analysts are warning of the potential consequences of this.

Charlene Chu, an analyst with Fitch Ratings, told the Financial Times: "Future asset quality deterioration is a near certainty – the question is only when, to what degree, and whether it will lead to a crisis."

Banks in the country have also been warned to stop chasing deposits from consumers by offering potential customers incentives such as paying school fees and jobs for relatives if they sign up for an account.

They are attempting to meet new regulations requiring a minimum loan-to-deposit ratio of 75 per cent.

Earlier this month, Stephen Bird, Citigroup's co-chief executive officer for the Asia-Pacific region, told Bloomberg that the firm is looking to treble its workforce in China over the next three years.

By Asim Shah

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