Rural China banks face test as risk rises

Beijing

BOND investors are weighing rising risks that smaller Chinese banks will fail against growing signs the government will do anything to avoid a financial meltdown.

A lender called Guiyang Rural Commercial Bank Co in the southwestern province of Guizhou sparked concern that risks among smaller lenders are spreading after its rating outlook was cut last month following a jump in overdue loans to 30 per cent of the total. That compares with just 3 per cent at the nation's biggest lender. Short-term borrowing costs surged for the riskiest lenders including rural commercial banks, which hold 29 trillion yuan (S$6 trillion) of assets, 13.4 per cent of the total amount in China's banking system.