CHINESE banks are increasingly drawing on Western ways of selling off bad loans, after the country’s largest five lenders last week reported a spike in defaults in an economy stuttering at its slowest growth rate in 25 years.

    The lenders plan to expand the practice of selling bad loans bundled into financial products to reduce the amount of unpaid debt on their books, according to banking insiders.

    The practice, though common in the West, was mostly unheard of in China just a year ago. Its uptake reflects government policy of relaxing restrictions on financial markets to attract investment, as well as banks’ hunger for ways to deal with a worsening bad loan situation as profit growth flags.

    Banks generally reported bad loan ratios, or the percentage of total lending which has soured, of 1 percent to 1.5 percent.

    Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (AgBank), Bank of China (BOC) and Bank of Communications (BoCom) last week each booked marginal profit growth or contraction for the fourth quarter. China Construction Bank (CCB), the last of the five banks to publish results, said Friday it earned 227.83 billion yuan (US$37 billion) in net profit last year. But it wrote off 35.66 billion yuan worth of loans last year, more than double the 16.7 billion yuan in 2013.

    ICBC booked a rise in bad loans to small businesses struggling with weaker overseas demand, and from coal-related firms in West China suffering from falling coal prices.

    AgBank reported its highest nonperforming loan ratio in three years, primarily due to manufacturers as well as wholesalers and retailers, whereas bad loans rose at their steepest pace in more than three years at BOC. At BoCom, soured debts reached their highest since 2010.

    In 2014, BOC, ICBC, AgBank and CCB wrote off and transferred out 128.98 billion yuan in loans. That marks a surge from 2013, when they wrote off 52.11 billion yuan. Compared with nonperforming loans they kept on their books, 2014’s write-offs came to about one-quarter of the size, compared with 15 percent in 2013. (SD-Agencies)