Disposals of bad debt in China are reaching levels not seen in nearly two decades as the banking sector grapples with an onslaught of poor-quality loans that amounted to about Rmb1.75tn ($258bn) last year.

The handling of non-performing loans has become a top priority for Beijing and is viewed as a threat to financial and social stability if it is not dealt with correctly. Although banks report bad debt levels of less than 2 per cent of total loans, the true figure is expected to be multiples of that.

President Xi Jinping has made the reduction of corporate indebtedness a key element of his financial agenda over the past two years. That banks are stepping up disposals of bad debt reflects a new urgency to clean up the books of many of China’s banks.