The Bank of China (BOC) has recently revealed that levels of non-performing loans are higher than previously disclosed. At the end of 1999 it reported that impaired loans made up 14.9% of the total. But in the past Chinese banks classified loans as bad or non-performing if loans were overdue by certain periods, rather than if the borrower's ability to repay the loan was doubtful.
BOC has now changed its rules to reflect borrowers repayment ability and at year-end 1999 bad loans totalled 40% of performing loans. In 2000 some of these loans were sold to an asset management company (AMC), reducing bad loans to 28% of the total. The bank, however, has only got loan loss reserves to cover 8% of the problem loans.