Loan losses at Chinese banks could mount as the country's structural reforms accelerate, the central bank said on Friday.

In its financial stability report for 2010, the People's Bank of China also warned of a growing risk of asset bubbles and inflation.

The bank reaffirmed its appropriately loose monetary policy stance and said it would deploy various fiscal and monetary tools to manage inflationary expectations.

Turning to the global economy, the report warned of a potential sovereign debt crisis if major economies did not bring their budget deficits under control. Interest rates were likely to remain low for an extended period in many countries, it added.