The risk of default for local government financing vechicles is low, said Guo Shuqing, chairman of China Construction Bank (CCB; 601939.SH, 0939.HK), state media reported. Guo said that most loans are backed by sufficient collateral, and that safeguards are in place to prevent a broad rise in bad debt. While CCB’s capital adequacy ratio fell to 11.68% at the end of June, Guo insisted that the bank will be able to keep above the 11.5% regulatory minimum. His comments come amid growing concern that China’s largest banks may be facing a wave of non-performing loans generated by last year’s government-directed lending binge. Regulators required CCB and other banks to undergo stress tests in July, the results of which have not yet been disclosed.
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