China’s Evergrowing Bank hit by 4b yuan credit product default

An off-balance-sheet credit product default has left a small mainland bank on the hook for 4 billion yuan (HK$5 billion), the latest default to hit the shadow banking sector, the People's Daily reported yesterday.

The default comes amid a wave of media reports on mainland banks and brokerages struggling to make payments on shadow banking products.

The popularity of off-balance-sheet products has exploded in recent years, with banks and trust firms marketing them as high-yielding alternatives to bank deposits, but analysts warn the risk of defaults is rising as the world's second-largest economy slows.

Evergrowing Bank guaranteed the repayment of 3.7 billion yuan of principal and 300 million yuan of interest payments under off-balance-sheet products issued by one of its shareholders and an affiliated company, the paper said on its website.

That sum accounted for 57.8 per cent of the lender's net profit last year, it added.

"Due to liquidity issues, the enterprises cannot repay the debt, so to protect its reputation, Evergrowing Bank must in accordance with the terms of a previously signed contract pay compensation," the People's Daily said.