China’s banks may face a 23% non-performing loan ratio on local government loans, Bloomberg reported, citing an unidentified source. The source, said to be familiar with data collected by the China Banking Regulatory Commission (CBRC), claimed that roughly half of all the US$1.1 trillion lent to local governments will need to be serviced by secondary sources because the projects cannot meet revenue targets. The claim may be related to recent reports that the CBRC is conducting stress tests of major trust firms to evaluate their performance in the event of a property downturn, and that it plans to issue "cleanup" rules for local government financing vehicles. The CBRC has reportedly instructed China’s banks to write off these non-performing loans by the end of 2010.
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