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Non-Performing Loans Ratio May Burden Wenzhou’s Banking Sector at the End of the Year

non performing loans ratio may burden wenzhou banking sector at the end of the year

The capital from Wenzhou is advancing nationwide by setting up 30 rural banks around the country, 4 of which has gone into business, and 26 of which under establishment with the approval from relevant banking regulatory commissions. Meanwhile, the pilot city for financial reform has also made progress in chattel mortgage. Local farmers can get loans from banks with their movables as mortgages, including greenhouses, tractors, farming machines and even growing rice etc. However, it seems that these progresses can not immediately relieve some of Wenzhou’s local private enterprises from their urgent demand for funds. Some insiders from Wenzhou’s banking sector worry that the non-performing loans ratio of the local banking sector may rise at the end of the year when private lending generally comes to settlement.

The updated statistics about the non-performing loans ratios of the banking sector in Wenzhou show that the figures are still on the rise. Though persons from the local supervision authority have not confirmed these figures, they also agree that the ratios are indeed not at the low end and are likely to go up in the near future.

According to some insiders of the banking sectors in Wenzhou, what troubles their banks at present is the tightening lending quota as well as a lack of deposits, and no improvement can be expected in the coming two months. Up to the end of September, the non-performing loans ratio of some banks in Wenzhou has surpassed 6%, which, as said by an insider of a bank, does not exactly reflect the difficulties of the banks in Wenzhou. In fact, there are still big potential risks lying ahead. On the one hand, the lending quota in the second half of the year tightens compared with the first half, and it is getting harder to attract deposits. On the other hand, the Notice of the China Banking Regulatory Commission on Regulating the Management of Inter-bank Refinance for Trade issued in August this year demands that all funds for inter-bank refinancing due before December 31, 2012 be counted, which leads to a great pressure on banks’ loan-deposit ratio, making some banks reluctant to renew loans and bringing the expectation that some loans will turn into non-performing ones.

Since Wenzhou was appointed the pilot region for financial reform, the local government has also attached great importance to this problem. An on-lending fund has been set up by the government to relieve the tightening cash flow of some enterprises. However, the fund seems a drop in the ocean considering the large developed private economy in Wenzhou, forming another hit to banks’ non-performing ratios.

As told by the owner of a local guarantee company, funds are generally recovered at the end of a year in Wenzhou’s private lending market. At present, if no mortgages, it is very hard to obtain loans in the private market, even at a monthly interest rate as high as 10%. Hence, those enterprises without mortgages will be faced with potential difficulties at the end of this year.

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