Banks plagued by bad loans in Yangtze Delta

(ECNS) – Banks in China's Yangtze River Delta are choking on bad debt.

Recently disclosed financial reports show that in 2013, eight major banks in the Yangtze Delta, which covers the coastal provinces of Zhejiang, Jiangsu and adjacent areas, generated 116 billion yuan ($18.7 billion) in non-performing loans (NPLs), one third of their total NPLs in the whole country, according to the Economic Observer.

The figure would rise to 200 billion yuan ($32.3 billion) if all other banks are counted in.

China Citic Bank's NPLs in the Yangtze Delta rose from 44.29 percent of its total NPLs in 2012 to 53.77 percent in 2013.

The newly added NPLs mostly come from the metal manufacturing sector, particularly from small and medium firms in the steel, iron and aluminum industries. Some banks claim the quality of their other assets is good.

Banks have raised the threshold for granting mortgages to fortify risk control. They're also quickening their pace of cleaning up NPLs by filing suits.

The Shanghai High Court has heard 3,700 such cases in 2013, a five-fold increase over last year. Total money involved rose to 23 billion yuan ($3.7 billion), 51.4 percent of financial and commercial disputes, and a 3.4-fold increase over last year.

But there's no quick fix. As loans become harder to get, some firms run into cash flow problems which further degrade their quality.

Also, NPLs are expected to rise moderately as the country phases out overcapacity and cracks down on pollution. The trend will likely spread from the Yangtze Delta area to mid and west China.

Commercial banks in small cities and rural areas are most vulnerable due to their small sizes and weaker risk control. Default on NPLs could affect upstream and downstream industries such as housing and construction.

By Qian Ruisha