China lenders can profit by understating bad loans - state asset management firm
BEIJING, Sept 17 (Reuters) - A state-owned asset management company in China said the "best business strategy" for the country's banks is to slightly underestimate their bad loan ratios, a rare affirmation of investor suspicions that Chinese lenders downplay their bad-debt woes.
China Orient Asset Management Corporation, one of four institutions created more than a decade ago to buy non-performing loans from ailing big state banks and dispose of them, said lenders could cut provisions, boost profits, raise bankers' wages, lift share prices and improve reputations if they underestimated bad debt ratios.
"Commercial banks can bring themselves many benefits by under-estimating their bad loan ratios," China Orient said in its 2013 report on the Chinese market for bad assets.
"It is not feasible to underestimate (bad debt ratios) by a large margin. That would be easy for authorities or accounting departments to uncover," it said. "Slight underestimations are the most feasible and the best business strategy."
A China Orient official, who declined to be named, said the remarks were an "analysis" and not a recommendation.
China's banks have an official non-performing loan ratio of less than 1 percent, a figure that has drawn disbelief from analysts given the country's explosive credit growth since 2008.
Investment banks guess that China's true bad debt ratio could be anywhere between 1.6 percent to 5 percent.
(Reporting by Koh Gui Qing; Editing by Richard Borsuk)