Bank guarantees and letters of credit (L/Cs) are partly responsible for a big increase in off-balance sheet loans reported by Chinese banks.

According to data released by the People's Bank of China, the country's banks have increased such loans by 110 per cent.

Extended loans

China's banks extended the equivalent of US$50 billion of off-balance sheet loans to companies in the first quarter of 2011.

But fears that some of these loans are not entirely risk free are underlined by higher risk assessments of these lenders' bonds over the last few months.

Fitch research

Research by Fitch reckons the value of disclosed off-balance sheet items by 16 Chinese banks is between US$3.5-$4 trillion.

The ratings agency says these items - which now represent 25 per cent of total bank assets - include entrusted loans, credit commitments, guarantees, L/Cs and acceptances.

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