Global auditing firm Ernst and Young has withdrawn a report saying China's non-performing loans (NPLs) totaled over 900 billion dollars, apologizing for what it called an "erroneous" publication.

Global auditing firm Ernst and Young has withdrawn a report saying China's non-performing loans (NPLs) totaled over 900 billion dollars, apologizing for what it called an "erroneous" publication. [AFP/File]

"As it contains errors, we are withdrawing the report," the firm said in a statement. "We apologize that this erroneous report was issued. We sincerely regret any misleading views that the report conveyed."

The size of China's bad loans is a figure of immense importance, as it serves as a measure of the banking sector's financial health.

Ernst and Young's decision came after China's central bank said the report, which claimed NPLs for the four large state-owned commercial banks totaled 358 billion dollars, "seriously distorted" the actual situation.

In its statement retracting the Non-Performing Loan Report, issued on May 3, Ernst and Young said a 911-billion-dollar estimate for China's NPLs had been based on the wrong assumptions.

"Throughout the report this amount was identified as a potential future amount that includes NPLs totaling approximately 358 billion dollars for the big four commercial banks," it said.

"Upon further research, Ernst and Young Global finds that this number cannot be supported, and believes it to be factually erroneous."

It said the report had not gone through the normal internal review and approval process before it was released to the public.

The central bank, which was not immediately available for comment Monday, had adopted unusually harsh vocabulary to refute Ernst and Young's claims in a statement posted on its website late last week.

"The report not only seriously distorts the actual assets quality of the Chinese banking sector," the People's Bank of China website quoted an unnamed official as saying.

"Its statements on several financial institutions are also seriously wrong and its conclusions are absurd and incomprehensible."

Ernst and Young said the firm was alerted to the mistake by its China branch, but said it had not been approached by the Chinese central bank or other Chinese authorities on the errors.

"Quality and integrity is what we believe in, and we have to do it right," said Annesa Leung, a spokeswoman for Ernst and Young in Hong Kong.

The company hoped the mistake would not impact the firm's business in China, she said.

Ernst and Young's report, widely quoted earlier this month, came as foreign institutions continued to move into the Chinese banking sector and as the nation's big banks sought a higher international profile.

China's monetary authorities say domestic commercial banks' non-performing loans ratio at the end of the first quarter of this year stood at eight percent or about 1.31 trillion yuan (164 billion dollars).

For the four large state-owned commercial banks, the China Banking Regulatory Commission has set NPLs at 133 billion dollars.

This, Ernst and Young said, is "computed on a regulatory and accounting standard based on objective evidence of impairment."

It said that Ernst and Young China's own involvement as auditor for one of those four commercial banks suggested to it that the overall figure for the four was right.

"Their audit, performed under international standards of auditing... supports the banks contribution to the total of 133 billion dollars for all four of the commercial banks," it said.

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