Bank of China will lead the asset-backed security (ABS) launch next week with a 301 million yuan (31.58 million pounds) deal, while China Merchants Bank will follow up with a 233 million yuan ($35.60 million) product.

The amounts are miniscule compared with an outstanding 1.39 trillion yuan ($212.37 billion) of non-performing loans at Chinese commercial banks by the end of the first quarter.

However, a source with direct knowledge of the matter told Reuters in February that six large banks had been given bad loan securitization quotas totaling 50 billion yuan, without providing further details.

Many analysts believe the real bad debt burden at China's banks is much higher, but even the official figures show a sharp rise in troubled loans.

Bad loans were up 9.4 percent quarter on quarter at the end of March, data from the China Banking Regulatory Commission showed this month.

Policymaker concern over the massive debt overhang has become more obvious in recent weeks with a widely read editorial this month in the People's Daily, the official newspaper of the ruling Communist Party, warning of the dangers of depending on debt for further growth.

Bank lending also fell back sharply in April following a record surge in the first quarter, in what some analysts have interpreted as a sign that the current easing cycle is nearing its end.

Banks made 555.6 billion yuan ($85.21 billion) in net new yuan loans in April, much lower than expected and less than half the 1.37 trillion yuan seen in March.

"Since GDP growth in 1Q16 remained above the 6.5 percent target, it seems likely that policymakers will now focus more on averting a major bubble and dialing back leverage," wrote Chen Long of the research house Gavekal Dragonomics in a note on Monday following the April data release.

"This is not to say that the central bank will cause another interbank liquidity crunch, but it will instead focus on keeping rates low and stable. Hence, do not expect more easing policies in the next 3 to 6 months."

(Reporting By Nathaniel Taplin; editing by Robert Birsel)

By Nathaniel Taplin