HSBC's Gulliver says bad loans will remain a challenge for China

[LONDON] China will need a combination of measures to resolve the ongoing challenge of mounting bad loans at the nation's banks, said Stuart Gulliver, chief executive officer of HSBC Holdings Plc.

The conversion of soured debt into equity and the securitization of nonperforming loans will play a part in a "slow and steady" resolution process, Mr Gulliver said at a forum in Hong Kong on Thursday, without providing details.

The highest levels of Chinese bad loans in a decade feature strongly in Mr Gulliver's thinking as his bank pushes into the southern Pearl River Delta with plans to add 4,000 jobs in areas from retail banking to wealth management. The London-based bank will slow the pace of that hiring amid China's economic downturn, but HSBC won't alter its strategy, the CEO told reporters in February.

China's presence in the Group of 20 nations "will enable it to confront many of its external challenges," Mr Gulliver said Thursday. "In the meantime, fundamentals of China's economy remain strong. Beijing has enough tools to support growth."

His comments come as Chinese policymakers consider ways to clean up banks' bad loans amid slowing growth and government moves to curb overcapacity in manufacturing. At last month's National People's Congress, Premier Li Keqiang floated the idea of using debt-equity swaps, which were employed in the late 1990s to alleviate a banking crisis.

"Emerging bad debt will remain a challenge and will require a combination of both new and old approaches," Mr Gulliver said.

BLOOMBERG