Bad loans fallout tipped to spread as risks grow

PUBLISHED : Wednesday, 08 May, 2013, 12:00am
UPDATED : Wednesday, 08 May, 2013, 5:20am

The mainland's non-performing loan woes, now affecting banking branches in the Yangtze River Delta, is expected to spread to other eastern coastal areas such as Shandong, Fujian and Guangdong provinces, Deloitte Touche Tohmatsu warns.

Playing down the chances of a bad-loan crisis nationwide, Deloitte said mainland banks' businesses in eastern China would probably see a hefty rise in non-performing loans this year.

"The risks of spreading bad loans in regional levels can't be ignored," Deloitte said in a report. "The risks seen in the Yangtze River Delta have been gradually spreading to other coastal areas such as Shandong, Fujian and Guangdong."

Last year, Jiangsu and Zhejiang provinces reported a soaring number of bad loans amid a series of underground banking scandals and fraudulent loans secured by steel traders.

Zhejiang, where privately owned businesses play a key role in the province's economy, saw bad loans more than double to 79 billion yuan (HK$98.6 billion) in 2012.

The non-performing loan ratio in the eastern province increased 0.77 percentage points to 1.68 per cent by the end of last year, higher than the national average of 0.99 per cent.

Jiangsu's bad-loan ratio stood at 1.04 per cent by the end of last year, up 0.23 percentage points from the previous year.

The collapse of underground banks in Zhejiang resulted in a sharp rise in bad loans because some of the loans issued by commercial lenders had flowed to the illegal private lending businesses.

Dora Liu, a Deloitte partner, said: "Those borrowers dealing with wholesale and retail businesses, whose financial strength is weak, are exposed to huge risks."