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S & P: Chinese banks are worst in bad loan ratios
[Hong Kong, September 7, 2003] International credit rating agency Standard & Poor's Star Ranking stated today that it had lowered the China Banking System bad loan ratio in from 50% to 44.5%. Meanwhile, the loan collection ratio increased from 15% to 20%.
Standard & Poor's Star Ranking stressed, that although it made these adjustments, according to international standards, China Banking System’s loan collection ratio is still very low, while its bad loan ratio is the highest in the world. Moreover, the capital ratio of China banking system is too low. If China’s banks want to reduce the bad loan ratio in the short-term, the government needs to invest capital directly or indirectly into the banks.
Analyst Zeng Yijing said the reason Standard & Poor's Star Ranking made an adjustment of the bad loan ratio in China’s banks is the rapid increase in total loan amounts, which is estimated to be as much as 12 to 13%. When the total loan amounts increase, the denominator of the bad loan ratio increases too. Also there has been some improvement in the bad loan collection ratio. As a result, Chinese banks bad loan ratio has decreased.
When the Chinese government made a capital investment to four state-owned banks in 1998, it stressed that all lending decisions should be based on commercial evaluations instead of political policy. Standard & Poor's Star Ranking believes that statement contributed to lower bad loan ratio. Still it will take years of observation to accurately estimate the quality of the loans made recently by China banks.
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