LENDING & CREDIT | Tony Chua, China

Bank of Communications discloses $67mn in soured loans

The lender’s total bad loans reached $906.53mn in the first half of 2011, an increase of $83.62mn from a year ago.

Bank of Communications, whose first-half profit rose almost 30 per cent, said six loans to local government financing vehicles (LGFV) had defaulted, but it remained confident that most of the billions of yuan in similar loans could be repaid.

In the first six months of the year, six such loans worth 429 million yuan ($67.05 million) turned sour, the bank's executive vice-president, Qian Wenhui, said on Thursday.

That represented 0.19 per cent of the 308.3 billion yuan ($48.19 million) in total loans granted to the vehicles, which raise funds for local governments to support the building of infrastructure projects.

"There are no signs that these non-performing loans will climb to explosive levels," said Qian, adding that the mainland's fifth-largest bank was ready to cover any increase in bad debts if a financing vehicle defaulted.

But analysts remained cautious about the bad loans since their effects will take time to surface.

The China Banking Association estimates that 70 per cent of the 9.09 trillion yuan ($1.42 trillion) in total LGFV loans are unlikely to be fully repaid by the projects they funded.

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