China microlenders get death threats as they try to recover bad loans; “Some of the borrowers are steel traders, toy makers, or plain loan sharks. Everything is fine when the economy grows robustly and liquidity is plentiful.”

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

Saturday, 08 June, 2013, 12:00am

Jane Cai in Beijing xuejun.cai@scmp.com

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.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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