Lai Xiaomin, chairman of China Huarong Asset Management Co Ltd.

The Chinese banking system is healthy and can handle its nonperforming loans, China Huarong Asset Management Co Ltd Chairman Lai Xiaomin said.

Huarong is one of the four State-owned asset management companies set up in 1999 to tackle bad loans, the other three being China Cinda Asset Management Co Ltd, China Great Wall Asset Management Co Ltd and China Orient Asset Management Co Ltd.

"My confidence comes from the fact that the banking system has been making profits," Lai told the 10th Asian Financial Forum in Hong Kong.

China's banking institutions recorded 226.3 trillion yuan ($32.79 trillion) in total assets by the end of December 2016, up 15.8 percent year-on-year, while their net profits for the year rose 4 percent year-on-year to 2 trillion yuan.

Nonperforming loans have been increasing for 14 consecutive quarters. According to the China Banking Regulatory Commission, at the end of 2016 NPLs stood at 1.98 trillion yuan, or 1.81 percent of total loans.

He said that Huarong has disposed of 680 billion yuans worth of NPLs in the past 10 years.

He cautioned that the risks in the real estate sector should be paid particular attention.

"Real estate is the key area where banking loans go to," said Lai.

Chinese authorities are increasingly taking note of financial risk associated with excess leverage and asset price swings.

Last year, the government rolled out a series of measures to tackle NPLs by allowing banks to write off bad loans, sell bad debts to asset management companies and conduct debt-to-equity swaps.

Wang Hongzhang, chairman of China Construction Bank Corp, said that the NPL rate was relatively low compared with the global average.