China's banks have written off $407 billion in bad loans in the past 3 years: Official

People walk past a sign outside a branch of Postal Savings Bank of China (PSBC) in downtown Beijing, on Nov 12, 2015.
People walk past a sign outside a branch of Postal Savings Bank of China (PSBC) in downtown Beijing, on Nov 12, 2015.PHOTO: REUTERS

BEIJING (AFP) - Chinese banks have written off more than 2 trillion yuan (S$407 billion) of bad loans in the past three years, an official said on Thursday (June 23) as Beijing seeks to reassure investors that the country can cope with its mounting debt problem.

The giant figure comes as Beijing has made getting credit cheap and easy in an effort to boost slowing growth in the world's second-largest economy.

But analysts have warned that a debt-fuelled rebound might be short-lived and ballooning borrowings risk sparking a financial crisis as bad loans and bond defaults increased.

Wang Shengbang, a high-ranking official with the China Banking Regulatory Commission (CBRC), said the country's banks had seen their non-performing loan ratios rise consistently for four and a half years, reaching 1.75 per cent at the end of March.

But they were well-prepared to handle the losses, he said, adding domestic lenders had written off 2 trillion yuan of bad loans over the past three years.

"Current figures show the banking sector's operation is generally stable and the risks are under control," he told reporters at a briefing.

"The CBRC took precaution measures in advance and in 2011... required banks to set aside more in provisions while the economy was in an upturn cycle so that we were able to accomodate huge writedowns when the economy was in a downturn cycle," he said.

China's total debt hit 168.48 trillion yuan at the end of last year, equivalent to 249 per cent of the national GDP, top government think tank the China Academy of Social Sciences (CASS) has estimated.

The most worrying risks lie in the non-financial corporate sector, particularly in state-owned enterprises (SOEs), Mr Li Yang, a senior CASS researcher said last week.

But none of the officials at Thursday's briefing - from the central bank, finance ministry, and national planning agency - addressed questions about SOE debt levels, with the moderator referring the issue to the "relevant authorities".

China's government debt ratio was 41.5 per cent of GDP at the end of 2015 if contingent debt - obligations that authorities are not liable for at present, but could become responsible for - was included, said Mr Wang Kebing of the Finance Ministry.