Last week, Bank of China, which is country’s fourth largest bank reported a double-digit rise in the non-performing loans for the first half of the year, reflecting the trend through the industry and adding to investors’ worries over the Chinese banking system.
Furthermore, Bank of China also said it sees a continued rise in bad loans for the rest of the year, particularly in manufacturing, wholesale business and the steel industry.
In the fund house’s latest global weekly commentary, Russ Koesterich said while bad loans are seen rising in the country, the problem appears “manageable.”
“While deteriorating asset quality remains a key risk weighing on banks’ valuations, we note that the government’s efforts to recapitalize banks are gaining momentum,” said Koesterich in the note.
“This, along with a number of so-called “bad banks” set up by local governments, should help strengthen state banks’ balance sheets,” the BlackRock commentary read.
In a bid to clear up the bad loans, China’s large state-owned banks have this month, started raising a planned $78.3bn in debt and equity sales to increase reserves. This is expected to jump to more than $300bn in the next five years, according to the country’s banking regulator.
Apart from fundraising, China is setting up a number of so called ‘bad banks’ that will buy non-performing loans from local lenders, helping them to clean up their balance sheets.
