Overdue Loans In Chinese Banks Increase30 August, 2011, 16:06. Posted by Zarathustra
Because of the explosion of the volume of local government debts, as well as the increasingly tighten monetary policy making lives tough for many companies, particularly in the small and medium sized businesses and real estate developers, Chinese banks are not loved here, as it is becoming more a out-of-the-money call option on the Chinese economy.
Caixin has a good summary for 14 of the Chinese banks which have already reported their first half result, and found that overdue loans have increased 6.35% at the end of the first half compared with the end of last year. Out of 14 banks, only 3 banks did not report rising overdue loans, and out of the remaining 11 banks, 8 of them reported more than 10% increase of overdue loans, and most of them seem to have arisen in the recent 3 months. The banks which top the league of rising overdue loans are Bank of Ningbo, Minsheng Bank, Pudong Development Bank and China Everbright Bank, with 31.97%, 24.71%, 22.19% and 17.87% increases of overdue loans respectively.
Minsheng Bank has more information of the surge in overdue loans. The surge of overdue loans started happening since the second quarter, which concentrated in the corporate loans, retail loans and credit card businesses. In the corporate loans segment, overdue loans increased by RMB750 million, with large proportion of them happened in real estate and manufacturing sectors. In the retail businesses, overdue loans increased by RMB700 million mainly due to the increase in interest rates.
While it is not by itself something which should raise the red flag, this is nevertheless something very interesting to note. In particular, the increase in overdue loans in the real estate sector (particularly if this is true for other banks as well) highlights the difficulties real estate developers are currently facing amid credit tightening as well as aggressive administrative curbs in home prices and speculations, which led to slow transaction volumes in various cities and ever higher inventories levels.
As the government seems to remain determined in curbing home prices and tightening stance remained for now in monetary front, small and medium sized businesses and real estate developers will continue to feel the pressure. Together with the slowdown in the developed world, the view here is that the situation both for the economy and banks do not look very good. Real estate developers, in particular, will be squeeze further going forward and be forced to cut prices, and that will probably set off more corrections in the real estate sector, and eventually hurting the broader economy.