Dongfeng Peugeot, a unit of the joint venture between French motor giant Peugeot Citroen and China's Dongfeng Motor Corp, has reached agreement on a car financing deal with three Chinese commercial banks.

The banks and dealers could do very well from the already burgeoning demand for cars in China that is expected to skyrocket over the next several years, but China's banks have seen some huge bad car loans over recent months.

Banking facilities

The financing deal involves the Bank of China, Citic Industrial Bank and China Merchants Bank providing car loans to Dongfeng Peugeot's dealers.

The three banks will open overdraft accounts and online letters of credit for car dealers, according to local media.

Bad car loans

Now is the right time for Chinese commercial banks to offer favourable loans to car dealers, Dongfeng Peugeot said in a statement to China Daily but that optimistic tone contrasts sharply with the huge bad car loans reported by Chinese commercial banks, mainly because of China's lack of a sound credit system.

By the end of this year, Chinese commercial banks are expected to have notched up the equivalent of around US$1.1 billion of bad car loans. That amounts to around one half of their total outstanding car loans. Chinese banks began placing controls on car loans at the beginning of this year.

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