CHINA’S biggest banks are stepping up their sales of securities backed by bad loans.

    Industrial and Commercial Bank of China, China Construction Bank and China Merchants Bank started to sell a total of about 4 billion yuan (US$600 million) of the securities from Tuesday through Monday, according to statements from the lenders over the past days.

    That will almost double sales under a trial program that started in May as part of government efforts to tame bad debt threatening to hobble the economy.

    The nonperforming loans are bundled up and sold at a discount to their face value. The latest batch of sales will rid lenders of 12.3 billion yuan of bad debt, including 2.99 billion yuan of personal mortgage loans at China Construction Bank.

    A warning indicator for banking stress published by the Bank for International Settlements (BIS) rose to a record in China in the first quarter, underscoring the risks from an explosion in credit since the global financial crisis.

    The lenders have signaled progress in tackling nonperforming credit. ICBC last month reported the first quarterly decline in its bad-loan ratio since 2012 as Chairman Yi Huiman talked of “a race of nonperforming loan formation against nonperforming loan disposal.”

    Bank of Communications said Monday that it’s actively preparing for bad-loan securitization.

    China’s bad-loan ratio held at 1.75 percent in the second quarter after almost three years of increases. Tools for tackling leverage and the build-up of bad credit include plans for banks to swap loans for equity stakes in companies.

    Agricultural Bank of China., Bank of China and China Merchants Bank have already sold about 4 billion yuan of nonperforming loan-backed securities.

    An early warning of financial overheating — the credit-to-GDP gap — hit 30.1 in China in the first quarter of this year, the BIS said Sunday. Any level above 10 signals a crisis “occurs in any of the three years ahead,” the BIS said.

    China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.

    Debt has played a key role in shoring up China’s economic growth following the global financial crisis. Outstanding debt reached 255 percent of GDP in 2015, fuelled in large part by a surge in corporate borrowing, up from 220 percent just two years earlier. (SD-Agencies)