While non-performing loan (NPL) ratios have crept up in the Chinese banking sector, recent results reflect some stabilization, said David Marshall, CreditSights's analyst for Asia-Pacific banks.
Marshall noted that the rise in NPL levels was far from that predicted by the International Monetary Fund, which estimated in an April report that the proportion of total commercial lending that was "potentially at risk" was 15.5 percent.
Last week, three of China's top five banks reported their half-yearly results.
The Agricultural Bank of China reported an NPL ratio of 2.4 percent at the end of June, up just 0.01 of a percentage point since the end of last year. Bank of Communication's NPL ratio edged up to 1.54 percent from 1.51 percent and China Construction Bank's NPL ratio rose to 1.63 from 1.58 over the same period. The Bank of China and Industrial and Commercial Bank of China will report earnings later this week.
"There are signs that the asset quality deterioration is slightly stabilizing so in the very short-term, there are signs that the banks performance isn't deteriorating so rapidly but that underlying concern is still there: Where are those bad loans?" he asked.
It is likely that the losses will be more evident over a number of years with the losses shared by the central and regional governments, as well as banks, he added.