A Bank of China branch in Henan province. (Photo/CFP)
Banks in China are facing the risk of default on loans extended to a number of firms in industries including steel, solar power and shipbuilding.
In its 2012 annual report released on April 24, the China Banking Regulatory Commission said that as of the end of 2012, the outstanding amount of nonperforming loans held by the country's commercial banks stood at 1.07 trillion yuan (US$173 billion), 23.4 billion yuan (US$4 billion) more than a year earlier, but with the loan rate reaching 1.56%, or 0.22 percentage points lower than a year earlier.
The annual report shows that in 2012, the manufacturing industry accounted for 177 billion yuan (US$5.5 billion) of loans, with its rate reaching 1.6%, followed by the wholesale and retail industry, with 107.1 billion yuan (US$17 billion) of loans and a rate of 1.61%. Compared with 2011, outstanding loans in the manufacturing industry increased by 31.7 billion yuan (US$5 billion) and a rate which inched up 0.06 percentage points.
The realty industry witnessed its outstanding loans and rate dropping to 27.9 billion yuan (US$4.5 billion) and 0.71 percentage points at the end of 2012, down 7.4 billion yuan (US$1.2 billion) and 0.26 percentage points from a year earlier.
"Banks are still closely monitoring loans extended to realty firms and regularly carry out stress tests for realty firms," says a banker.
In the manufacturing hub of the Yangtze River Delta, which reported the highest amount of underperforming loans, the risk related to mutual guarantees among enterprises still exists. The regulator has intensified its supervision of group risk to prevent its spread among private lending and illegal fundraising groups within the banking sector.
At the end of 2012, total loans extended to municipal loaning platforms hit 9.3 trillion yuan (US$1.5 trillion), an amount which is even higher when fundraising by municipal governments via bond issuances and trusts is factored in.
The commission has placed greater emphasis on control of loan amounts and creating solutions this year. The regulator strictly supervises banks in the design, sales, and fund outlets of wealth management products, forbids banks to sell private equity funds, and requires banks to separate the operation and management of fixed-yield and floating-yield wealth management products.
The annual report shows that as of the end of 2012, 233 Chinese banks were engaged in wealth management business and were offering 32,152 wealth management products, which attracted 7.1 trillion yuan (US$1.2 trillion) of capital.