Bad Property Loans Afflict China Banks

China’s four biggest state-owned banks reported an increase in nonperforming loans to property developers in the first quarter, as the government seeks to cool the real estate market by tightening lending controls.

Bad loans to property developers at Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China increased by 500 million yuan (HK$479.9 million) in the first quarter to 70.8 billion yuan, representing 10.1 percent of total property lending, the People’s Bank of China said Tuesday in a statement.

China started imposing curbs on property projects in April 2003 to try to slow an economy that has grown at an average annual pace of 8.6 percent for the past decade. Operating profit at the nation’s biggest banks slowed in the first half and analysts say the property-related bad loans may increase.

“This is a time bomb that may explode at any time if the government takes further measures to prick the bubble,” said Wu Yonggang, a Shanghai-based banking analyst at Guotai Junan Securities. “Chinese banks’ exposure to real estate and construction lending accounted for about a fifth of their loans.”

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