China remains two years from seeing non-performing loans hit their peak, with banks likely underreporting bad debt, according to a report by a state-owned asset management company that highlights the challenges facing the country's financial sector.

China Orient Asset Management Co. (COAMC), one of four state-owned asset management companies, said in its 2018 China Financial Non-performing Assets Survey Report that the rate of non-performing loans for commercial banks would reach a peak in 2020.

The survey, which COAMC has conducted since 2008, saw leading asset managers, commercial bankers and more than 50 experts in economics and finance questioned between late November and late December 2017.

According to Xinhua, the survey found that while most respondents were confident China would maintain steady economic growth in 2018, there would be greater urgency on handling non-performing loans. Most interviewees agreed that adverse risks would be accelerated, with the actual rate of non-performing loans likely higher than reported figures.

Citing COAMC's report, Xinhua said 2018 would likely see greater efforts to handle non-performing assets, a shift from 2017's focus on suppressing potential areas of risk, saying pressure to conduct structural deleveraging is becoming more prominent.

The report went on to say economic structural reform and weak risk controls in the financial sector would likely lead to an increase in loan defaults and more non-performing loans in the near future.

According to a report by the China Banking Regulatory Commission, Chinese lenders were dealing with around 1.5 trillion yuan (216 billion US dollars) worth of non-performing loans as of September 2017, representing 1.76 percent of all loans.

However, Caixin reported at the time that a survey conducted by the People's Bank of China in Jiangsu Province found local banks in the region were understating their bad loans by at least half.

Central authorities have made combating debt a priority for 2018, with December's Central Economic Work Conference releasing a statement vowing to fight the battle of preventing and resolving major risks, with a focus on preventing and controlling financial risks.

Earlier this month, official data from the State-owned Assets Supervision and Administration Commission showed a drop in the state-owned enterprise asset-liability ratio in the first quarter of this year thanks to deleveraging efforts.

Xinhua reported at the end of March that local authorities issued 30 percent less debt in 2017 compared to the previous year. State-owned enterprises and local government debt have both been earmarked as potential areas of risk.(FROM CGTN)