China local goverment loans issue greater than thought: Moody's

Reuters News
Posted: Jul 04, 2011 10:23 PM
China local goverment loans issue greater than thought: Moody's

SINGAPORE (Reuters) - Moody's ratings agency said on Tuesday that the scale of problem loans to Chinese local governments was greater than anticipated, following the release of new data by China's National Audit Office (NAO).

Moody's also said its credit outlook for the Chinese banking system may turn to negative when considering the apparent absence of a clear master plan to deal with the local government debt issue.

"We assume that the majority of loans to local governments are of good quality, but based on our assessment of the loan classifications and risk characteristics, as provided by the NAO and other Chinese agencies, we conclude that the banks' exposure to local government borrowers is greater than we anticipated," Yvonne Zhang, a Moody's vice president and one of the authors of the report, said in a news release.

Of the 10.7 trillion yuan ($1.6 trillion) of local government debt examined by the Chinese audit agency, 8.5 trillion yuan ($1.3 trillion) was funded by banks. But Moody's said it had identified another potential 3.5 trillion yuan ($540 billion) of such loans that the Chinese auditors did not discuss in their report.

(Reporting by Kim Coghill; Editing by Ramya Venugopal)