Half of all microcredit lenders in Guangdong deemed insolvent
Surge in bad debt comes amid push by Beijing to increase loans for the poor and local government moves to roll out policies to support microlenders
More than half of all microcredit lenders in China’s southern Guangdong province are financially insolvent, according to industry experts.
The insolvencies come amid a push by government authorities for the financial industry to increase access and services to the poor and the downtrodden at the grass root level.
The local Guangdong provincial government acknowledges the financial problems faced by lenders and has sought to roll out supportive policies to help them stay afloat. This includes increasing their levels of leverage.
Kuang Renshan, a deputy director general at the Guangdong Financial Services Office says a relaxation on their capital requirement will go a long way in helping the microcredit industry.
At a meeting of microlenders last week, Kuang told participants that his office is considering means to allow microlenders to increase their level of leverages to 200 per cent of their book on funds raised from wholesale borrowing.
Excluding the Shenzhen metropolitan area, there are now 378 microcredit lenders operating in Guangdong. Of this figure, Du Xiaoshan, director of China Association of Microfinance estimated less than 100 are in “normal operations” and fewer than 60 would likely demonstrate any sort of business growth.
Du said some microlenders have seen their non-performing loans surge past 50 per cent, which renders them financial insolvent unless they access new capital.
Luo Haojie, general manager of Ebaodai, a Guangdong-based lender estimated that fewer than 20 per cent of industry peers are solvent.
Microlenders are challenged by the same forces that have flattened profit growth in the nation’s biggest state-owned lenders, causing industry-wide asset deterioration in this latest earnings season. But unlike the big state-owned banks, micro lenders’ client exposure are more vulnerable to the economic downturn and the lenders, owing to their small scale, do not have the same balance sheet size and risk management sophistication to withstand the current conditions.
According to the Guangdong Microcredit Association, the level of non-performing loans saw a steep rise in 2015. About 2.8 per cent of loans were classed as non performing, up from 0.63 per cent in 2014. The total level of bad debt now amounts to 1.34 billion yuan (HK$1.61 billion) in an industry that has only 74 billion yuan of registered capital, but loans out nearly the full sum at 70.7 billion.
“When the real economy is bad, the operating environment deteriorates. It is natural that loans cannot be collected,” said Shao Jianming, president of the Guangdong Microcredit Association.