China's banks are facing serious default risks on more than one-fifth of the Rmb7,700bn ($1,135bn) they have lent to local governments across the country, according to senior Chinese officials.
In a preliminary self-assessment carried out at the request of the country's regulator, China's commercial banks have identified about Rmb1,550bn in questionable loans to local government financing vehicles – which are mostly used to fund regional infrastructure projects.
A senior official from the China Banking Regulatory Commission told the Financial Times these loans would not necessarily all go bad but that the country's non-performing loan ratio would almost certainly “increase slightly” at the end of the year.
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