The central bank said the nation's bad loans may be as much as double official estimates, as lenders haven't reported all their loan defaults, heightening concerns about the health of local banks.
"I don't have an exact figure on what non-performing loans may be, but it could be close to 10 percent," said Chen Shih-meng, deputy governor of the Central Bank of China yesterday.
Officially, the government fixed an estimated figure of 5.4 percent as of Sept. 30.
"I got this estimate from sampling a number of banks. I checked their reported figures against the actual figures, the latter from top management, which shows certain under-reporting," he said.
But Chen admitted that it is difficult to get an exact figure on the amount of non-performing loans, as banks have different definitions. In addition, banks also have a certain type of practice that renews contracts to borrowers even if they fully understand the borrower can't pay the loans back, he said.
Meanwhile, Chen pointed out that the central bank doesn't plan to change the practices of the banks, adding that banks can cope with even higher levels of bad loans on their books.
"We don't want to change the way the banks report non-performing loans," Chen said. "Even if the true figure stands at 10 percent, I think it's manageable. Banks are putting in a lot of effort into writing off bad loans. The problem will be under control in a few years," he said.
Analysts are concerned by the government's policy of stimulating the economy and rebuilding confidence by encouraging lending to struggling textile, steel, construction or property companies.
The TAIEX fell 4.93 percent yesterday to 5,454.13, its biggest fall in percentage terms in a month, with banks making up a fifth of the decline.
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