Cinda warns trust defaults rising rapidly on mainland

PUBLISHED : Saturday, 29 March, 2014, 1:13am
UPDATED : Saturday, 29 March, 2014, 1:13am

The mainland's bad debt is on the rise, with bad-debt manager China Cinda Asset Management warning that a default peak season for its gigantic trust products sector is approaching after years of rapid yet questionable growth.

The company, established 15 years ago by the central government to buy back bad loans from big banks, is seeing buying opportunities emerging as baskets of trust products are expected to go sour and commercial banks come under greater pressure to sell non-performing loans amid liquidity pressure.

"China's trust products have been increasing by 50 per cent annually over the past years, a pace that is problematic," Cinda president Zang Jingfan told a press briefing in Hong Kong yesterday. "Trust defaults could explode in a concentrated period of time."

Trust defaults could explode in a concentrated period of time

Cinda vice-president Wu Songyun said the total amount of trust products on the mainland was 10.9 trillion yuan (HK$13.7 trillion), most of which had been built up in the past four years. UBS estimates that more than 20 trust products worth 23.8 billion yuan have encountered payment difficulties since 2012.

Trust companies on the mainland have acted as intermediaries to arrange funding from wealthy investors for firms operating in industries that banks have spurned, such as coal, solar energy and property. The mainland has witnessed two defaults of trust products this year.

At the end of last year, Cinda was holding 2.9 billion yuan worth of trust products, of which one third was available for sale, according to its annual report released yesterday.

Wu said fresh defaults could spark concern among investors about the safety of trust products and thus affect the liquidity of some of Cinda's trust asset holdings, although the overall risk was "manageable".

He said non-performing loans were also expected to increase.

The non-performing loans in the mainland's banking system totalled 560 billion yuan, having increased for nine quarters since the third quarter of 2011, he said. If loans made by small and medium-sized financial institutions were included, the mainland's bad loans amounted to more than one trillion yuan, he added.

Zang said: "The pressure on the nation's commercial banks to dispose of their non-performing loans is increasing."