Chinese banks distort lending figures: Fitch

BEIJING: Chinese lending in the first half of 2010 has been understated by nearly $200 billion as banks secretly shift loans off their books to meet government requirements, according to a new report.

Fitch Ratings estimates new lending in the six-month period was 28 per cent, or $192 billion, higher than official data shows as banks covertly repackaged loans into investment products and sold them to investors.

Chinese banks officially issued 4.6 trillion yuan ($679 billion) in new loans in the first half, but the actual figure was probably closer to 5.9 trillion yuan, Fitch said.

"The vast majority of these transactions are not publicly disclosed by Chinese banks... resulting in pervasive understatement of credit growth and credit exposure," Fitch analysts said this week.

China has sought to curb rampant bank lending this year after new loans nearly doubled to 9.6 trillion yuan in 2009, fuelling fears of a damaging bubble in the property sector and an explosion of bad debts.

Authorities have set a lending target of 7.5 trillion yuan for this year and ordered banks to increase the amount of money they keep in reserve, effectively limiting the amount they can lend.

To get around these restrictions, banks are increasingly moving loans off their balance sheets through "informal securitisation", which Fitch says is masking the true extent of bank lending and bad debts exposure.

Demand for these repackaged loans is also growing as investors, faced with negative real savings rates and weak equity markets, seek higher-yielding investments, it said.

At the end of the first half, Fitch estimates that more than 2.3 trillion yuan in outstanding loans was sitting off the balance sheets of Chinese banks in investment products -- a more than tenfold increase from the end of 2007.

Alarmed at the amount of credit leaking out of the banking system, China's banking regulator earlier this month slapped a temporary ban on informal securitisation, Fitch said.