China economy

China microlenders get death threats as they try to recover bad loans

PUBLISHED : Saturday, 08 June, 2013, 12:00am
UPDATED : Tuesday, 23 January, 2018, 11:45am

Threatening messages are routine for Miao Qiang these days.

"A killer from Beijing will take your life if you don't withdraw the lawsuit," a message on his mobile phone reads.

Miao, co-owner of a microcredit company in Jiangsu province, laughs helplessly. He has brought a dozen companies and individuals to court since the beginning of the year as loan defaults surged. But little of the money has been collected.

"I'm not upset about intimidating letters, but am rather worried about the bad loans continuing to build up," Miao said.

The mainland economy decelerated to grow at 7.7 per cent in the first quarter, sending banks' non-performing loans (NPLs) climbing for a sixth consecutive quarter. There are no official statistics on the asset quality of privately owned credit firms, which mainly serve small and medium-sized enterprises (SME). But the problem is believed to be severe for the mainland's 6,555 microcredit firms, which had outstanding loans of 653.7 billion yuan (HK$821 billion) at the end of March.

"The bad-loan problem is far more serious among private credit firms than banks, because of looser risk control and larger exposure to small companies," said Yuan Gangming, a researcher with the Chinese Academy of Social Sciences. "Their reluctance or inability to provide fresh loans to SMEs would endanger them and dent employment."

About a third of the 300 million yuan of outstanding loans at Miao's firm are overdue by at least three months, which is a situation he could not have imagined when he set up the firm in 2010.

"Some of the borrowers are steel traders, toy makers, or plain loan sharks," he said.

"Everything is fine when the economy grows robustly and liquidity is plentiful. But when growth slows down, our business is severely hit. I'm very cautious about making new loans now."

NPLs at banks on the mainland grew 6.8 per cent to 526.5 billion yuan in the first quarter, and the NPL ratio edged up to 0.96 per cent at the end of March from 0.95 per cent a year earlier, the China Banking Regulatory Commission said last month.

Banks are faced with mounting default risk on loans they made to exporters, local government financing vehicles, property developers and the industries saddled with overcapacity problems, the banking regulator said earlier this year.

"The NPL figures greatly understate the potential scope of the problem of poor-quality loans," Carson Block, the short seller who runs Muddy Waters, said in an e-mail to the South China Morning Post.

"The loans-waiting-to-go-bad problem is far more widespread than just [those of] the local government financing vehicles. It would implicate loans throughout the economy - both public and private sector."

CreditEase, a lending intermediary that matches lenders with borrowers, mainly owners of small businesses, said it had stopped recommending individuals lend to certain sectors.

Tang Ning, chief executive of CreditEase, would not provide NPL figures for the firm.

Benjamin Fanger, managing director of Shoreline Capital, a private equity firm, said:

"The NPL investment opportunity in China is like a massive submerged iceberg. Everyone agrees it is huge, with estimates of NPLs in China ranging from US$500 billion to over US$2 trillion."