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Report: China to let banks convert bad debt into equity

China may soon permit banks to convert up to 1 trillion yuanof bad debt into equity, Bloomberg News reported April 5, citing "a personwith knowledge of the matter."

The plancould be approved as early as April, the person said.

Huatai Securities Co. analyst Luo Yi said in a recent note thatthe move could lower the banking sector's NPL ratio by 1 percentage point, accordingto the report. It could also increase banks' annual net profit by an average of4%, Luo said.

Some bank executives have expressed skepticism about the program,however. China Construction Bank Corp.Chairman Wang Hongzhang in March said the plan could result in shareholders inheriting"bad equity."

As of April 6, US$1 wasequivalent to 6.48 Chinese yuan.