Chinese banks face a high risk of deterioration in asset quality that could lead to a “sluggish landing” for the economy, state media reported, citing a report released yesterday by Credit Suisse Group (CS.NYSE). The financial services company cut its ratings on Chinese banking shares to “underweight” from “overweight” and increased utilities to “overweight” from “market weight” based on its projections that lenders will face a larger-than-expected credit overhang. Chinese banks issued a total of US$2.7 trillion in new renminbi-backed credit in 2009 and 2010. In the first five months of this year, new renminbi loans have totaled RMB3.6 trillion (US$556.24 billion), down 12% from the same period last year. “China’s credit-to-gross domestic product ratio has risen to alarming levels in the past two years due to massive off-balance-sheet financing, and raised a red flag for future asset quality problems in banks,” the report said. “Connecting the new lending data with decelerating GDP growth, tight liquidity and higher interest rates form the recipe for loan-book stress.” Credit Suisse has cut its GDP growth forecast from 8.9% to 8.5% for 2012.