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China banks are facing an urgent need to dispose of bad loans as they face growing uncertainties in coming months, a survey by state-owned China Orient Asset Management showed. Non-performing loans and NPL ratios of lenders are expected to rise further this year and bad loans attached to smaller and medium-sized regional banks need close watching, the survey of financial firms showed.

This year throws up "grey rhino" risks, including indebted local government funding vehicles and defaulting property companies, along with "black swan" risks that could include China-US relations and the pandemic, many survey participants said.

Hu Jianzhong, a senior official with China Huarong Asset Management, said bad assets will increase over the next three to five years and their prices will fall given the economy will slow and measures for dealing with risks, deleveraging and removing excess production capacity will generate more bad assets. He conceded that the disposal of bad assets will be difficult, hampered by a lack of liquidity and continued risks -- underlined by the property sector which could struggle to unload assets including shopping malls and hotels.