Despite prominent first-half earnings, domestic banks now see an upward momentum in their overdue loans, triggering market concerns about their asset quality in the coming days, a report from the Shanghai Securities News said Thursday.

According to statistics from Guotai Jun'an Securities, as of June 30, 11 out of 14 Chinese mainland-listed banks reported an increase in the outstanding value of overdue loans compared with the beginning of this year.

The Industrial and Commercial Bank of China, the country's largest lender, has overdue loans of 109.82 billion yuan ($16.01 billion) by June 30, up 11.32 percent from the second half of 2007. Its overdue loan ratio has grown 0.1 percentage points to 2.5 percent.

Meanwhile, the overdue loans of China Construction Bank, the country's second-largest by assets, rose 4.52 billion yuan, or 4.97 percent, to 95.37 billion yuan. Loans overdue within three months increased 12.05 billion yuan.

China CITIC Bank also saw a 15.69-percent hike in its overdue figures to 1.68 billion yuan, the report said.

According to Wu Yonggang, an analyst from Guotai Jun'an, the trend may forecast a rebound in banks' non-performing loan (NPL) ratio by some 0.5 percentage points in the coming year. In addition, the rising outstanding value of NPLs will become more common for banks because their lending scale is also expanding, he said.

According to Wu, there are three possible reasons behind the overdue hike. First, the May 12 earthquake in the southwest Sichuan province has caused some disaster-related defaults. Second, affected by the nation's economic slowdown, import-export companies and medium- and small-sized firms have met more financial problems. Third, some banks' seven-day allowance policy for loans has also added to the overdue figures.

According to Haitong Securities analyst Fan Kunxiang, overdue loans appear more often in sectors like manufacturing, real estate, retail sales and transportation. In contrast, public utilities and the education sector pose less credit risks, according to past estimates.

Fan noted that the increasing overdue loans may be a warning sign of banks' asset condition. He suggested banks improve their risk control management to lessen the possibility of NPLs.

According to banking insiders, about 40 to 50 percent of loans can be taken back by banks on average if they remain overdue for less than 90 days. An even lower percentage will be recollected if the loans last longer.

(Chinadaily.com.cn September 5, 2008)