Major Chinese banks triple debt write-offs

The mainland's biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults.

Industrial and Commercial Bank of China, the world's most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan (HK$28.1 billion) of debt that could not be collected, up from 7.65 billion yuan a year earlier, filings showed. That did not pare first-half profits, which climbed to a record US$76 billion, as provisions were set aside.

Erasing the worst of the bad debts may allow the banks to mitigate a surge in non-performing-loan ratios amid rising defaults. The mainland has eased rules for writing off debt to small businesses since 2010 and policymakers are pushing the lenders to increase risk buffers following an unprecedented credit boom that began in 2009.

"The banks and the regulators' interests are aligned in speeding up write-offs," said Ma Kunpeng, a Beijing-based analyst at Credit Suisse Founder Securities. "This prepares them for a rainy day."

The China Banking Regulatory Commission urged banks in April to set aside more funds to cover defaults, write off some bad loans and curb dividend payments while earnings are ample to create a buffer in case of an economic downturn.

Worries about the slowdown have persisted even after the country's gross domestic product rebounded to 7.8 per cent in the third quarter. Growth may slow to 7.6 per cent this year, the weakest pace since 1999, according to a survey.