China’s Zhejiang banks hacking away at mounting non-performing loans

Zhejiang banks hacking away at mounting non-performing loans

Staff Reporter

2013-07-23

Zhejiang, which has the highest non-performing loans and NPL ratio of any province in China, hopes to take a softer approach to cutting its ratio than it did 10 years ago. Whether it can be successful depends on whether the Chinese economy can smoothly pop its market bubbles, the Guangzhou-based Southern Weekly reports.

As of the end of 2012, Zhejiang banks had combined outstanding NPLs at 79 billion yuan (US$12.8 billion), accounting for 16% of the country’s total, statistics showed. In Zhejiang and the southeastern coastal region, asset preservation and cutting NPLs have become major initiatives of the banks in the region.“The pressure is extremely great,” said Qiu Jia (pseudonym), general manager of an unidentified Zhejiang bank’s asset preservation unit. Qiu’s unit, which handles NPL disposals, has become buried in work as the months progress, he said.

China’s State Council said on July 5 that it supports banks in the shedding of their NPLs, authorizing them to to make their own decisions in writing off bad loans, absorbing and handling risk and preventing improper write-offs that may lead to new risks.

More than 10 years ago, there was a massive influx of NPLs triggered by the widespread closure of companies. This time, company operations are healthy, but rising NPLs appear with over-financing and over-investment, said Yang Yili, president of a Zhejiang investment management company. Banks should offer bankruptcy protection instead of using identical, 10-year-old methods to handle the NPLs this time, Yang said.

In the first half of this year, Qiu’s bank wrote off about 100 million yuan (US$16.3 million) in NPLs, but the rate of new NPLs has almost nullified the efforts, having increased nearly 100 million yuan, he said.

Although Zhejiang banks all have been trying to cut NPLs since last June, outstanding NPLs continued to rise in the first half of this year, he said.

Ten years ago, the NPL ratio of China’s banks in general exceeded 20%, which already technically qualifies them as bankrupt. Following the nation’s bank share reform, the NPL ratio has been leveled over the past 10 years, with Wenzhou’s NPL ratio reaching as low as 0.37%, a sound, internationally recognized level.

In the first quarter of 2013, Zhejiang banks had combined outstanding NPL of 101.4 billion yuan (US$16.5 billion), up 6.28 billion yuan (US$1 billion) from early 2013, with NPL ratio at 1.64%, an increase of 0.04 percentage points, statistics showed.

However, since Wenzhou’s private lending risks skyrocketed in 2011, writing off NPLs in the city has become one of the government’s top priorities. In the first five months of this year, Wenzhou banks wrote off a combined 6.87 billion yuan (US$1.1 billion) in NPLs, nearly 20% of the country’s total figure.

In June, Wenzhou’s NPLs and NPL ratio both fell for three straight months. At the end of June, Wenzhou’s outstanding NPLs fell to 26.43 billion yuan (US$4.3 billion), down 1.34 billion yuan (US$218 million) from a month earlier, with NPL ratio at 3.68%, down 0.22 percentage points month-on-month.

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: