Chinese banks warned of growing bad loans

China's banking sector was warned bad loans are growing due to overdue borrowings at a time when economic growth is slowing on the mainland, according to an analysis by PricewaterhouseCoopers (PwC).

In PwC's analysis, the top 10 listed Chinese banks had a bad-loan balance of 449.4 billion yuan (HK$563.6 billion) at the end of 2013, up 19.4 per cent from the previous year. The average bad-loan ratio grew 0.06 of a percentage point to 0.99 per cent.

"In the worst-case scenario, if all the overdue loans turned sour, the bad-loan ratio will likely grow to 1.5 per cent," said Raymond Yung, the firm's financial services leader for China. "But I don't think that it is not manageable. The banks have enough coverage for the potential loss."

The banks saw overdue loans, the amount which borrowers did not pay back on time and could turn into bad loans, were increasing at a faster pace than the bad loans, signalling increased pressure on non-performing assets.

The decline of credit quality reflects the impact on banks on the slowdown of economic growth in the country. The Chinese government is targeting a gross domestic growth rate of 7.5 per cent in 2014, down from 7.7 per cent in 2013.

Mainland banks had a loan loss coverage ratio of 283 per cent as of the end of last year, according to Barclays.