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.

Both Citic and Everbright declined to comment. Minsheng could not be reached for comment.

Shanghai-based Bank of Communications, in which HSBC holds a stake of nearly 20 per cent, also recently set up an in-house taskforce on bad loans, one source said.

"Some banks have put 20 to 30 staff in these special teams and their jobs are to call related companies - the borrowers - to urge them to repay, but sometimes it doesn't really help too much."

The CBRC's Shanghai bureau recently urged all banks in the city to take their bad loan problems more seriously. In some cases the bureau has helped troubled borrowers to negotiate loan roll-overs.

Earlier this month, the bureau asked several local banks to extend loans for Shanghai Chaori Solar Energy Science & Technology, a Shenzhen-listed private solar energy maker now in financial trouble, local media reported.

The Shanghai Banking Association, one of the mainland's oldest banking industry bodies, also recently held meetings to encourage members, including the Shanghai branches of 10 of the biggest state-owned banks and some foreign banks with China headquarters in Shanghai, to "help each other" in the wake of the growing bad loan problem, said a banker who participated in one of these meetings.

"The industry association wants us to help each other because sometimes a client may borrow from various banks and if one bank pushes the client too hard to repay the loans, there may be a chain reaction," the banker said.

In comparison, the Shanghai branches of the mainland's so-called Big Four banks - Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank - had all managed to keep their NPL ratios below 2 per cent, mainly because most of their loans went to state-owned enterprises that were in better financial health, said the sources.