China Regulator Said to Tell Banks Provisions for Bad Loans Are Inadequate

http://www.bloomberg.com/news/2011-07-29/china-regulator-s-bad-loan-provision-inadequate.html

China’s banking regulator told lenders they haven’t set aside sufficient funds to cover losses on loans to local governments and ordered them to accelerate debt collection, a person with knowledge of the matter said.

The lenders were told this month that they are lagging behind the China Banking Regulatory Commission’s schedule for revising the loan agreements on infrastructure projects, the person said, declining to be named because the information is confidential. The agency had asked banks to collect two repayments a year after construction is completed.

The comments reflect persistent concerns that $1.7 trillion of lending to local governments may spur a wave of bad debts that could lead to the nation’s third banking bailout in less than two decades. As much of 30 percent of the credit may sour, Standard & Poor’s estimates, after a surge in lending that powered China’s recovery from the global financial crisis.