China Construction Bank (HKG:0939, SHA:601939) increased its holdings of government debt by 20% year over year to reach 72 trillion yuan by August, Bloomberg reported Thursday, citing data from the People's Bank of China.

The increase in government bondholding by the commercial banking sector comes as the country's bond market is about to erase this year's advance, adding to banks' bad loans and low margins, the report said.

"Banks had to increase bond investments, even though the recent selloff due to booming stocks and a lack of monetary easing was a pain," Bloomberg quoted Huayan Securities analyst Liao Zhiming as saying.

Once loan demand falls, banks will not be able to cash in on loans as they used to, the report said.

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