Non-performing loans in Zhejiang banks continued to rise. Investigations by the regulatory authorities looked at 170 companies which obtained loans from banks, and found that 70% of these companies under investigation had signs of over-capacity, involvement in real estate investment and informal lending, with 90% of loans classified as “bad”. In fact, non-performing loans have been rising in Wenzhou for 11 consecutive months to RMB4.5 billion, with the NPL ratio at 2.43% at the end of May, and far higher than the national average (if both numbers are to be trusted, of course).
Tuesday, July 10, 2012
Ongoing shadow banking risks
Not a very well written article, but it revives some points I find interesting. Formal lending in the past has only helped fuel shadow lending, but through other mechanisms than those mentioned here. If you are a state owned enterprise, this is easy: Get a loan for just about anything, turn around and lend the money as a loan shark. If you are not a SOE and you are under financing restrictions: get a loan for copper, buy copper, then use proof of its warehousing to obtain new money that has no restrictions on it. Whether new formal lending is fueling more shadow banking . . . there isn't proof of that in the article. Other articles cite a seizure of the shadow banking system in Wenzhou, where no one has the funds to pay anyone else. If any one player in such a chain gets access to formal funding and uses it to cover their shadow debt, I'm not sure the other players in the chain wouldn't just breathe a sigh of relief and continue to hold their remaining funds close and keep trying to collect on what is owed them. As to the non performing loan ratios. They are clearly wrong, as the bad loans from the previous bank crisis in the late nineties are still on the books and would represent something like 30% NPL by themselves. I take that as some kind of political signal that they are rising at all. That's interesting, given that the numbers are whatever they want them to be. China's Shadow Banking Risks Are Spreading Through The Financial System