The 100 billion yuan (US$12.67 billion) in bad car loans should be a warning sign for the banks, says a signed article in Shanghai Securities News. An excerpt follows:

The bad bank debt relating to car loans has reached 100 billion yuan (US$12.67 billion) so far, with 81 percent owed to the "Big Four" State banks - China Construction Bank, Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China.

In fact, these mounting bad debts are connected to the incompletion of the individual credit system. The banks have limited individual information, and the borrowers may conceal related information, intentionally or not. Thus, an imbalance of information is formed between banks and borrowers.

But this is only one of the reasons for the mounting amount of bad debt. The banks should reflect on their own problems.

In reality, some banks break regulations, lower borrowing conditions and loosen the checks on borrowers' qualifications in order to compete for market shares. By doing this, they have expanded their market shares but increased their risks.

The more than 100 billion yuan in bad auto loans also sends a warning sign to housing loans, which may suffer from similar problems in the future.

Personal housing loans have developed rapidly in recent years. In 1997, the total mortgage was less than 20 billion yuan (US$2.53 billion), while the number jumped to 1.6 trillion yuan (US$202.55 billion) in 2005. Housing prices kept rising during this period, and banks have gained sufficient profits. Therefore, almost all banks view housing loans as a good product.

To expand their market shares, many banks are not strict in their qualification inspections, and the vicious competition among banks has seeded hidden dangers. Economists have warned that another round of bad debts may be in the offing.

(China Daily October 26, 2006)