New | Risks mount for China’s banking sector as debt burden weighs on small lenders

China’s banking sector may see an upheaval in coming years if smaller, unlisted lenders fold under the weight of growing credit losses.

Credit losses have almost doubled between 2013 and 2014 and continued to mount in the first half of this year, said Standard and Poor’s analyst Qiang Liao in a recent report.

“You can tell the credit losses from the Chinese banks will continue further because of a continuing slowdown in the Chinese economy and a supply glut,” he said.

Qiang believes the pile-up in losses would lead these banks to close, sending ripples through the country’s smaller businesses.

“Small and medium-sized enterprises usually do business with small banks and will be hit if they close,” he said.

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The growing threat to small lenders comes at a time when the economy is in the middle of a slowdown, with growth dropping below seven per cent.