Mounting bad debts rock 'the cradle' of enterprise in Wenzhou

The rapid growth in the level of bad loans in the entrepreneurial hub of Wenzhou is raising danger signs about a potential deterioration in credit quality at mainland banks.

The non-performing loan (NPL) ratio in the city rose for the 12th consecutive month to reach 3 per cent at the end of August, or 21 billion yuan (HK$25.7 billion), the highest level in a decade, the state-owned China Securities Journal said yesterday, citing unnamed officials.

By comparison, bad debts were just 0.37 per cent of total loans at the end of August last year.

The article said the latest figure was up 0.15 percentage point from July, and had more than doubled since the start of this year.

Liao Qiang, a Beijing-based analyst at global credit rating agency Standard & Poor's, said the debt level was still lower than the NPL ratios of banks in the US and Europe, but the rapid growth was worrying.

"Although 3 per cent is not an alarming figure, the situation in Wenzhou could deteriorate", given the slowing global economy, he said.

The southeastern coastal city in Zhejiang province is known as the cradle of private business on the mainland and a hub for small- and medium-sized enterprises that manufacture everything from spectacles to shoes. The city suffered a credit crunch last year as private lenders halted credit after a number of borrowers defaulted on their loans.