Lending by Hong Kong banks to mainland companies continued to shrink in the first quarter, indicating the credit-crunch problems faced by the mainland enterprises have not yet ended. Exposure of the banking sector to non-bank mainland entities at the end of March amounted to HK$224.9 billion, down 3.7 per cent from HK$233.6 billion in the previous survey at the end of last year, according to the Hong Kong Monetary Authority. Exposure was spread among 167 institutions, including local and foreign banks. 'For both the fourth quarter of 1999 and the first quarter of this year, the reduction in the banking sector exposure to non-bank mainland entities was mainly caused by repayment and write-off,' an HKMA spokesman said. He said repayments and write-offs were both lower in the first quarter than in the fourth quarter last year. Total lending to the non-bank mainland entities represents 3.4 per cent of the total assets of the banking sector. A local banker said many banks had written off their bad debts relating to mainland enterprises, as many borrowers were hard hit by the Asian financial crisis and were unable to repay their loans. 'Under such circumstances, banks have little confidence to offer new loans to mainland companies,' he said. 'We would expect banks' exposure to the mainland enterprises would continue to decline.' The confidence of banks in mainland companies collapsed after Guangdong International Trust and Investment Corp (Gitic) went bankrupt in 1998. Other Itics and Guangdong Enterprises Holdings (GDE) also have had problems repaying debts to SAR banks, leaving many banks having to make multi-billion dollars of write-offs. The HKMA spokesman said the situation should turn for the better because an agreement in principal was reached in December between creditor banks and the Guangdong government on restructuring GDE's debts. 'This should pave the way for other restructuring of mainland borrowers to be concluded successfully,' he said.