Fears of a Chinese banking crisis are growing, as a key indicator of the country's debt reaches its highest level on record.

China's credit-to-GDP gap hit 30.1% in the first three months of this year - far above the 10% level associated with banking risks - according to a quarterly report by the Bank for International Settlements (BIS).

It was also higher than any of the 42 other countries in the BIS survey, including the US, Greece and the UK.

A year ago, China's figure was 25.4%.

The Swiss-based BIS gave the world's second-biggest economy a red signal, indicating the possibility of a financial crisis in the next three years.


Because China is a key driver of global growth, any crisis in its banking industry could cause catastrophe around the world.

Its debt hit 168.48 trillion yuan (£19.35tn) at the end of last year, which the China Academy of Social Science says is about 249% of GDP.

Changing Face Of China's Economy

The country's efforts to boost growth with cheap credit have struggled, with all four of its main state-owned banks reporting mounting bad loans in the first half of the year.

The banks have also written off more than $300bn (£230bn) of bad loans in the last three years, according to one of China's regulatory officials.

But China's authorities hope that new measures, including debt-for-equity swaps, will tackle the bad loans issue.

Analysts say the country's vast foreign exchange reserves and control over its banking system could help steer them away from financial crisis.