Off-balance-sheet loans balloon at Chinese banks

Chinese banks helped arranged RMB320 billion (US$49.5 billion) of loans in the first quarter that weren’t recorded on their balance sheets, raising the risk on their bonds to a nine-month high, Bloomberg reported. So-called entrusted loans, which are kept off balance sheets because the bank acts only as a middleman, with no direct credit risk, have increased by 110%, data from the central bank show. But although the bank assumes no direct credit risk, lenders are still vulnerable should the final borrower trigger a chain of defaults. Companies are charging firms interest of up to 21%, three times higher than the benchmark one-year lending rate of 6.31%. More than 40% of the borrowers on entrusted loan deals announced since January 2010 have been property developers, according to research by Bank of America Merrill Lynch. State media reported Thursday that the Industrial and Commercial Bank of China (601398.SH, 1398.HK), the world’s biggest lender by market capitalization, plans to sell RMB38 billion (US$5.9 billion) of subordinated bonds as soon as next week, according to people familiar with the matter.