China's big banks risk 90's loan debacle repeat: Fitch

Massive government-directed lending by China's top banks to roads and railroads risk repeating credit mistakes of 90's which cost $650 billion to clean up, warns Fitch.

"We suspect some of the banks may have compromised their risk-management and risk-aversion attitude to meet targets and government expectations," said Fitch Ratings analyst Wen Chunling in a Bloomberg report. "That will lead to a rebound in non-performing loans in the next few years."

Bank of China made 511 billion yuan of new loans, more than twice the amount for the previous year. Compared with 161 billion yuan last year, China Construction offered 521 billion yuan of new credit for the first quarter. ICBC quadrupled the amount extended in 1Q 2008 by advancing 636.4 billion yuan of new loans for the same period this year.

According to China’s banking regulator, bad loans at Chinese banks fell by 10.7 billion yuan in 1Q to 549.5 billion yuan. Wen of Fitch Ratings, however, said the drop doesn’t reflect better risk management. She said it was a result of lenders writing off borrowings they had earlier classified as non-performing, removing them from their balance sheets.

Wen added it may take as long as three years before the increase is fully reflected in bad-debt statistics as China’s loan-classification system requires subjective assessments.