SHANGHAI/BEIJING (Reuters) - China’s central bank is investigating the accuracy of non-performing loans (NPLs) data at banks as concerns about risks in the country’s financial system grow, people with direct knowledge of the matter told Reuters on Monday. A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014. REUTERS/Petar Kujundzic Specifically, the central bank’s financial stability bureau is investigating whether any NPLs have been miscategorised as normal loans or special mention loans, referring to debt at risk of default, according to two sources who saw a central bank notice on the issue. The probe comes as slowing economic growth raises regulatory concerns that banks are increasingly covering up their NPLs to dress up their balance sheets, said one of the sources. The build-up of bad debts, which have increased for 18 consecutive quarters, follows the state-driven credit boom of 2009 and has so far shown no signs of slowing. The People’s Bank of China (PBOC) is looking into whether banks’ assets are categorized correctly according to their quality and if there is government interference in financing for public projects, another source said. The central bank is also checking to see if troubled assets have been secretly moved off-balance sheet and if loan repayment schedules are reasonable, the source added. Local offices of the PBOC will conduct spot checks and on-site investigation, and issue evaluation reports, the source said. Chinese commercial bank NPLs rose to an 11-year-high of 1.4 trillion yuan ($214.5 billion), or 1.75 percent of total bank lending, at the end of March, data from the country’s banking regulator showed last week. Adding the additional 3.2 trillion yuan of special-mention loans, the banking sector’s total troubled lending reached 4.6 trillion yuan at end-March, a jump of 428 billion yuan from December, the data showed. Bank analysts widely believe NPLs in China’s banking sector are far more severe than official data suggests, as some banks delay loan recognition and use off-balance sheet lending to hide bad debts. In a report this month, CLSA said NPLs may account for 15 to 19 percent of loans. The PBOC declined to immediately comment on the investigation when contacted by Reuters. This year, the central bank introduced a new regulatory system, the Macro-Prudential Assessment (MPA), to more effectively guard against systemic financial risks as the country’s banking assets become more diversified. Reporting by Li Zheng, Shu Zhang and John Ruwitch; Editing by Sam Holmes
China 's central bank is investigating the release of NPLs data at the banks due to its concerns over the country 's financial system ; the probe will focus on whether the loans have been mis - categorised as normal loans or special mention loans . Analysts widely believe problems in China 's banking sector are far more severe than official data is suggesting , as some banks delay loan payments and use off - balance sheet lending to hide bad loans .