Bad loans rise sharply in Shanghai bank sector

The Shanghai branches of several mid-sized mainland banks have seen rapid increases in bad loans this year as private companies feel the pinch of the nationwide economic slowdown.

At the Shanghai branch of Beijing-headquartered China Citic Bank - listed in Shanghai and Hong Kong - the non-performing loan (NPL) ratio jumped to about 5 per cent of total outstanding loans this month, far higher than the national average of about 1 per cent, according to sources familiar with the matter.

A 5 per cent NPL ratio translates into about six billion yuan (HK$7.5 billion) of bad loans, the sources added.

"It's not just Citic Bank. Other banks' Shanghai branches are also facing trouble and could wind up with similarly huge bad loans on their books," one of the sources said.

Bad loans began to increase rapidly since the third quarter of last year. It worsened in the first half of this year, in particular among many small- and medium-sized enterprises in the wealthy Yangtze River Delta economic zone in the east, including Shanghai city and Zhejiang and Jiangsu provinces.

The official Shanghai Securities News yesterday reported that the China Banking Regulatory Commission had recently issued a notice to all commercial banks urging them to strengthen risk controls in lending.

The sources, who spoke on condition of anonymity, said the Shanghai branches of China Minsheng Bank and China Everbright Bank - both headquartered in Beijing - also saw their NPL ratio cross 4 per cent, forcing the two banks to set up special teams to tackle the problem.