July 27 (Reuters) – Not all the loans to local government financing vehicles that Chinese banks have identified as being at risk of default will in fact turn sour, a source at China’s banking regulator said on Tuesday.
The source, who declined to be identified, was responding to media reports that about 23 percent of the 7.66 trillion yuan ($1.13 trillion) that banks had lent to local governments, mainly to finance infrastructure, could become non-performing. [ID:nTOE66P032]
He said banks could mitigate credit risk by, for example, requiring the borrowers to set aside more collateral.
The estimate of the percentage of loans at risk was based on the banks’ own investigations at the behest of the China Banking Regulatory Commission, the source added. (Reporting by Zhou Xin and Simon Rabinovitch; Writing by Alan Wheatley; Editing by Jacqueline Wong)