Looks like there are more companies defaulting on their loans in the Jiangsu and Zhejiang province. When i look at HTM financial assets on Page 128 of the AR2013, i noticed there is an increase of HTM financial assets from RMB1.4b to RM6.1b classified under Others in the borrowers' industry. In FY13, default rates on HTM investments were less than 5%, with most repaid through sale of collateral. I presume there will be more impairments in the coming quarters.
Note that the article states that solar, steel and real estate were the biggest source of NPLs in the Jiangsu region. And 44% of the YZJ's HTM financial assets are to the real estate sector!
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(not vested)
Yangtze River Delta becomes epicentre for China credit risk
(Reuters) - Suzhou, an ancient city in Jiangsu province 100 km (60 miles) west of Shanghai, lives in legend as one of China's most beautiful, famous for its elegant gardens and charming canals.
More recently, it became an industrial powerhouse, sitting at the heart of the Yangtze River Delta region that, along with the Pearl River Delta in Guangdong, drove China's economic boom. Now it is ground zero for a painful corporate de-leveraging that has tacit government approval. One third of all loan delinquencies come from the region, and credit is getting harder to come by.
"The more banks do this, the more they promote a vicious cycle, and companies are even less able or willing to repay their loans," said Zhou Dewen, vice chairman of the China Association of Small and Medium Enterprises.
The Yangtze River Delta (YRD) covers the financial capital of Shanghai and the eastern provinces of Zhejiang and Jiangsu. In 2012, it accounted for half of China's exports and attracted 57 percent of its foreign direct investment.
The outsized role of small, private firms, their savvy entrepreneurs and the vibrant underground financing networks that supported them have been a source of strength for the YRD. But now it may be a vulnerability as the government shows it is prepared to let companies fail -- at least private ones.
Among the six largest domestic banks that classify their non-performing loans geographically, this region accounts for one-third of their bad debts. "The YRD's economy has been pretty seriously battered. Risks are multiplying," said a risk-management executive at a mid-sized bank in Shanghai.
Economists say a series of isolated defaults would be mostly positive in the long run for China, by improving risk pricing and the efficient allocation of capital. But there is a risk that defaults could trigger a chain reaction of credit problems that has the potential to destabilise China's financial system, similar to the way global markets froze after the collapse of Lehman Brothers in 2008.
The region can already claim China's first domestic bond default, after Shanghai Chaori Solar Energy Science and Technology Co Ltd missed a bond interest payment last month. Last week, a synthetic yarn-maker in Zhejiang declared bankruptcy, raising the prospect of default. That firm's bond carries a guarantee from another textile company, highlighting linkages between firms that some worry can amplify risks.
The government's hands-off approach is a clear shift from its bailouts of the past -- including of Chaori, which in 2013 received assistance from a district government in Shanghai that enabled it to make a coupon payment.
BAD-DEBT MANAGEMENT
Private companies in the YRD control 28 percent of assets held by industrial firms, compared to a national rate of 19 percent, according to Reuters calculations based on official data. The true ratio in the YRD is likely higher, since official figures only cover firms with annual operating revenue above 20 million yuan.
"Some specific industries bring risk," said Xu Chengming, professor at Nanjing University of Finance and Economics, located in Jiangsu's provincial capital. Xu said
solar panels and steel were the biggest sources of non-performing loans in Jiangsu. The channelling of funds into speculative investments, such as real estate, has further amplified risks.
Not surprisingly, Jiangsu was the first local government to establish its own bad-loan asset management company, modelled on the asset managers that Beijing used to clean up the balance sheets of the country's four biggest banks, followed by Zhejiang and Shanghai.
Most analysts think
bad loans, both in the YRD and nationally, are higher than official figures indicate, as banks can extend overdue loans and use other techniques to disguise delinquencies.
"These are China's most developed places. The most developed places are growing the slowest," said Zhu Tian, chair of the economics department at China Europe International Business School in Shanghai. "If growth is slowing, you are going though some kind of transition, and some low value-added industries will have to die."