Analysis | China's banks work overtime to soften bad-debt rates

China's official count on bad debt for the first half of the year packed few surprises.

The average non-performing loan ratio for commercial banks, like clockwork, hit 1.5 per cent at the end of June, according to the China Banking Regulatory Commission, up from a clean 1 per cent a year and a half earlier.

The figure was well within the expected range, and also far below what most analysts consider to represent true deterioration of asset quality at banks, which China's slowing economy has propelled as companies struggle to repay bank debt.

Experts have set the implied NPL ratio at anywhere from 3 to 7 per cent of total loans and expect the rate to continue to climb to the end of this year and into next.

But the low official figures also reflect much of the work going on behind the scenes at banks, local governments and struggling companies to manage bad debt at the source, before it is recorded as a non-performing loan.

With an unprecedented level of troubled loans showing up over the past year, mainland banks have become increasingly organised in the way they prepare for the onslaught of NPLs, either by selling them off, writing them down or even rolling them over as if they never existed.