High local debt levels coming under control

China's local debt level has been decreasing over the past two years and the property loan risk is under control, China's top banking regulator said on Thursday.

The whole of the country's local government debt amounted to 9.25 trillion yuan ($1.48 trillion) at the end of September, Shang Fulin, chairman of the China Banking Regulatory Commission, said during a session of the 18th National Congress of the Communist Party of China, which opened on Thursday.

Delegates from the country's top financial organizations discuss Hu Jintao's report at the 18th Party Congress on Thursday. From left, China Investment Corp Chairman Lou Jiwei, China Securities Regulatory Commission Chairman Guo Shuqing, People's Bank of China Governor Zhou Xiaochuan and China Banking Regulatory Commission Chairman Shang Fulin. [Xu Jingxing / China Daily]

This was the first update on local government debt since the figure 10.7 trillion yuan was released at the end of 2010.

"The scale (of local debt) hasn't changed much from the previous year ... The current goal is still to control the increments," Shang said.

Moreover, the debt structure has changed, as the majority of debt has been transferred to the provincial level from the city and county level, lowering the risk, Shang said.

But local governments still have a healthy cash flow of 9 trillion yuan, or 97.3 percent of the total debt, for repaying capability, he said, and "the local debt issue will be solved after some time".

Shang said the scale of housing loans in China was 11.7 trillion yuan by the end of September, accounting for 19.09 percent of the country's total loan balances, a much lower level than the global average.

Meanwhile, a relatively small proportion of property purchases are financed with mortgages and defaults are rarely seen, he said, adding that housing loans will still be carefully monitored among new loans.

Banks will tighten the management of mortgages and the approval of new credit, he said.

"In the future, there will be more financial support to encourage purchases of smaller and lower-priced properties, as well as affordable-housing projects," Shang said.

According to Shang, although the amount of nonperforming loans has increased somewhat this year, banks had an average NPL ratio of 0.97 percent, much lower than the 3 percent average of the world's 1,000 banks. And the provision rate was 285.6 percent.

In a report released on Nov 7, Moody's Investors Service affirmed deposit ratings for China's Big Four banks and upgraded the credit assessment of one of them, while the sector has been shaken by narrowed interest margins and rising bad loans amid economic uncertainty.

The international rating agency maintained the long-term and short-term deposit ratings for the four lenders, and upgraded the baseline credit assessment for the Agricultural Bank of China from Ba3 to Ba2.

The other three banks are Industrial and Commercial Bank of China, China Construction Bank and Bank of China.

Hu Bin, vice-president and senior analyst of Moody's, said the affirmation of the ratings of ICBC, CCB and BOC with a stable outlook follows a review of the latest economic and regulatory developments in China.

"It reflects our assessment that these banks' performances, especially regarding asset quality and profitability, will prove resilient in the current challenging operating environment," Hu said.

He acknowledged that the three have seen more delinquent and special-mention loans since late 2011 as a result of China's economic slowdown, amid margin pressure as parts of their loan books have yet to be repriced at lower rates after authorities' moves to further liberalize interest rates.

"Factors such as the still above-target growth of China, the measures the banks have taken to restructure and monitor loans to local government financial vehicles, and gradual regulatory changes made by authorities will help contain the risks," Hu said.

Moody's said it is likely to upgrade these banks' baseline credit assessments next year "if there are growing signs of economic stabilization and if these banks can keep their financial performances close to current levels".

Contact the writers at weitian@chinadaily.com.cn and huyuanyuan@chinadaily.com.cn