The controversy surrounding auditor Ernst & Young's report that non-performing loans at mainland lenders far exceed official estimates was unlikely to lead to a reduction in the role foreign institutions played in resolving China's massive bad-debt burden, bankers said.
The report, which was released in the United States, said China's four largest state-controlled banks had US$358 billion worth of non-performing loans (NPL) on their books - almost three times the official tally of US$134 billion. The auditor put the total level of bad debt in China's financial system at US$911 billion.
E&Y backed off the study issued this month after China's central bank blasted the auditor, saying its conclusions were 'ridiculous'.
'Upon further research, Ernst & Young Global finds that this number cannot be supported, and believes it to be factually erroneous,' the firm said. 'The NPL report did not go through our normal internal review and approval process before it was released to the public.'
The controversy, however embarrassing it may be to E&Y, is unlikely to cause significant disruption to the disposal of the US$230 billion in non-performing loans that remain on the books of the mainland's four asset managers because China needs both foreign technical expertise and buyers. Advisory work is also unlikely to be significantly affected as bad-debt sales rely on such work.
KPMG is organising a sale of two billion yuan of bad assets for China Orient Asset Management, while Great Wall Asset Management plans to sell 18 billion yuan this week in Hangzhou.
E&Y is hardly the first outside observer to cast doubt on official bad-loan figures.