Steel Debts Still Exploding, Foshan Bank NPLs Up 217% in 7 Months

Back in April I posted Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee. Steel traders were pulling similar scams to what was uncovered at the Qingdao port earlier this year, only they did a much more thorough job of Ponzi-ing up the system. Many steel traders in Fujian were using their rehypothecated proceeds to open credit guarantee firms, which then guaranteed their buddies rehypothecated steel loans. It started blowing up in early 2012 and the courts started clogging in 2014.

Now steel debts are blowing up in Foshan, in Guangdong province, a totally separate system of steel trading debts from the one that went bust in 2012 in Fujian. The bad debt ratio for banks in Foshan has gone from 0.85% at the start of the year to 2.60% in July. One steel debtor sums up China's debt problems. He says he didn't gamble with the money, he didn't squander it, it's become fixed assets. One thing fixed assets are not is liquid.

At heart are also the joint credit guarantees, with dozens of cross guarantors for each borrower. As one debtor put it, the bank even brought in some cross guarantees for him, he doesn't know them, how can he know if they repaid? If 20 of them haven't repaid their debts, how's he supposed to come up with the money?

He goes on to describe the situation using ants and elephants. In prior years, sometimes an ant would die, and the elephant could carry it on its back. Now the elephant is going to die, do you think the ants can carry it?

Banks are blamed for pushing loans on borrowers, getting them to renew their loans as they came due in addition to cross guaranteeing other borrowers.

Steel traders were paying 15% to the banks and earning 36% buying real estate or loaning out the cash at higher interest rates, who wouldn't borrow as much as possible? Their risk control was lacking though: everyone focused on whether steel prices were up or down, and whether they had orders, instead of the financial risk growing in the system.

Why did Foshan's debts last two years longer than in Fujian? The answer appears to be real estate. The situation is exploding in 2014 because the slowdown in real estate has slowed the flow of capital and falling asset prices are deflating. Borrowers are caught short of cash and are unable to cash out their assets.

Wenzhou. Xiaoshan. Qingdao. Zhouning. Foshan. How many more local credit busts are out there? The same pattern repeats over and over in different provinces. The local economies are still mildly autarkic in China and this keeps the dominoes from falling between economic regions, but it doesn't stop individual dominoes from falling all over the place, which set of localized daisy chain defaults. Systematic risk has yet to emerge, but the bigger risk is the system that is repeated in local economies all over China. The big risk isn't dominoes falling nationally, it's that dozens or hundreds of different local economies all fail for the same reason.

iFeng: 佛山钢贸不良贷款7个月增217%:商户叫冤 银行焦虑

Foshan steel trade "sick as a mountain down." Time credit overdue focus on the outbreak of the crisis in the steel trade after the Yangtze River Delta for two years.

How serious is the situation? "First Financial Daily" reporter exclusive access to regulatory monitoring data as of the end of July showed that non-performing loans of the banks in Foshan, 6.054 billion yuan from the end of last year surged to 19.214 billion yuan, an increase of 7 months 217%; non-performing loans rate from 0.85 percent late last year, rose 2.6 percent.

In the non-performing loan balance of less than 200 million in Foshan, music from the region to invest in the steel trade, plastics trade two industries accounted for half bad, about 10 billion, of which the "culprit" is the steel trade.

Foshan steel trade, more precisely, Foshan Shunde Lecong steel trade industry is experiencing now what? Also try to find the cause of the banking industry, Foshan steel trade, "a serious illness," the breaking point, why exactly two years late? And why, after all, still come?

Autumn of 2014, when this reporter visited Foshan bank and the parties heard statements are vaguely revealed early in 2012 when the Yangtze River Delta Steel Trade Crisis and similar story: merchants from the beginning of stunned, Jiaoyuan, even trying to lose confidence Tao Feizhai, to finally calm down and find a way out; Bank of anxiety from the outset, to close the loan, each game, to finally set up in unison to try and rescue the debt committee.

Investigated the causes of the two steel trade similar story often has a similar principle: "Industrial hollowing out" let a lot of money and finally settled into a real estate asset prices has shrunk nearly two years, the result of increasingly tight liquidity; applies only to economic "UNPROFOR mutual" loan mechanism has become a rising cycle when the risk of the spread of "guilt" mechanism; risk of the outbreak of the early contraction of the total bank loans in accordance with the credit policy of the blame, but this is equivalent to the confiscation of the already "10 pot 9 cover" loans businesses in the hands of the rest of the "cover" credit funds misappropriation cast, cast mine brought funding maturity mismatch, all of a sudden the bottom.

Innocence loan businesses

"You look at me, my 'money' in ah." Music from a large steel trading company boss told this reporter that he listed a number of property name to apply bank loans dropped, rightly no cover. He wants to prove that he did not gamble or squandered bank loans, and "just" is turned into fixed assets.

In line with this logic, many steel trading business in crisis for feeling wronged. Faced with newspaper reporters, they tend to regard the blames on two things: to close the bank loan guarantee mechanism.

"Yes Bank in less than a year's time to close nearly half of the steel trade loans." Above the steel trade company boss did not forget analogy: "If in a few months time, half of the depositors are withdrawals, even if the world's largest The Industrial and Commercial Bank of China [0.00% funding research report ] will collapse ah. "

According to the local steel industry trade guarantees monitoring, music from the total amount of steel last year, nearly 90 billion trade financing, not private lending, the bank's loan balance of more than 70 billion, but this year the industry summary data show that the balance of the bank loan steel trade has less than 40 billion, equivalent to at least 30 billion has been recovered, and most occurred during the year.

All this "breaking point" is the last Trading Co., Ltd., chairman of Guangdong基柏Fan should win funding strand breaks, but also because of the debt at the end of the dispute to court, Fan should win is the music from Steel Association; same period, the local "big southern steel trade Crocodile "Guangdong gold type Heavy Industries Co., cash flow problems, to seek bankruptcy integration.

As in the Yangtze River Delta crisis was detonated in steel trade "Wuxi boss a continent on foot" event, exported such "fuse", "Fire" is: First, mutual UNPROFOR system allows unlimited risk spread out; second, triggered nervousness bank loan management department, the industry entered a list of all the businesses' concerns class "banks. Before the arrival of the real dangers, many banks want to act in front of peers, quietly withdraw pumping loans to protect themselves.

For mutual UNPROFOR, a loan customer, said his situation is his liabilities have had to play, but the thought of their own due to mutual UNPROFOR and provoke "liabilities", he night insomnia, loss of business down confidence.

"If we Yue finally died from the steel trade, it crushed us not 'debt', but head thought 'liabilities'." He said.

"I personally have dozens of UNPROFOR, some former bank 'matchmaker' to people, I do not familiar with how they repay me to see it live? If they have 10 people, 20 people will not loan I guarantee where the money to fulfill the obligations it? "

This is the name of loans to customers with "The Ant and the Elephant" metaphor own confusion. In his view, the relationship between the individual and the occurrence guarantee merchant group, like a relationship, "ant" and "elephant", "A few years ago the situation is good, even if the occasional 'dead' ant, ant elephant can go back ; Now the situation to die, will 'die' an elephant, do not want to go back to the elephant ants do? "

His thinking this is very common in the industry. Applies only to economic upward cycle of mutual UNPROFOR mechanisms in low-speed developing economies, naked to show the Chinese financial lack of innovation, a single letter flawed trial mode.

If the theoretical roots of accountability, mutual interconnection itself is offset by non-systematic risk among individuals a mechanism to reduce the risk of bank credit arrangements, but this mechanism occurs only at the risk of the individual and the amount is small when effective, once the risk is more concentrated outbreak , but this mechanism will become non-systematic risk system up and accelerate the proliferation risks, thereby increasing the risk of loan principal and banks.

Anxiety Loan Bank

Jiaoyuan loan merchants own their truth, but this reporter once asked, "Why do you have to bank loans due Xudai" or "Why are so many people with UNPROFOR," when, in addition to "Banks want to loan us more "In addition, almost no more answers. Even today, in an interview with this reporter found that the steel trade is hard to understand their own businesses "over financing" and since then the inevitable "misappropriation of credit funds" vote as he is a mistake. The mutual UNPROFOR mode, but also to expand financing leveraged tool.

"China's SME entrepreneurs tend to adhere to the 'dawn to dusk, daring to dare risk' money should be simple values, they rarely credit risk management awareness, almost no one has a liquidity risk management awareness." There accusing him of Guangdong Province Branch ( governs Foshan two branches) wind control department executives said SME entrepreneurs who have not yet experienced a complete economic cycle, to the acquisition of what is risk management.

In this reporter visited Foshan, including steel trade, including a number of SMEs, when reporters tentative expansion of credit and risk management and control two topics to ask questions, answer collected often subconsciously identified as a risk expansion profit model, which is similar to "ask the bank to borrow money (overall costs) 15 points costs, investment out (to buy a house, put interest rates, etc.) 36 points in return," the idea, implying that the "why"; The risk management and control, the majority of SMEs, on the left, "steel is up is down," "there is no order," these two considerations.

But in a credit crisis, the bank's dilemma is real.

"This year, we are almost a month, sometimes twelve weeks is necessary to pull a number of existing customers specialized loan card, not for anything else, whether it is monitoring the industry began to close the loan." Accusing him of a charge of credit The person said.

It cited the name of the credit department of a home loan customers for example steel trade. Loan funds of customers, and ultimately flows are real estate projects, mainly because of the short maturity unable to pay the loan maturity mismatch long cast, but the real estate projects of its clients shares. The bank therefore put clients into a "maintain pressure" in the "security" of a class, and hopes to "Fangshuiyangyu" to make money by constantly Xudai term match. Customers also promised property construction capped once cast into the sales, will return the funds to pay off the loan as soon as possible.

But the next question, so that the above-mentioned credit people headaches.

First, the name of the client in more than a bank loan, and the remaining banks may not necessarily want this big firms, like a small bank an overdue look at the name of the client occurs, it rapidly recovering loans, resulting in customer funds chain worse. "Those small banks is really very hard to start, we start late is also a victim." He said.

Second, the client implicated guarantee circle one after another, there are other merchant bank loans guaranteed by the client can not repay, but the one and the court, leading to its assets have been seized.

"You say how can we do, when to finally become a good man 'pay people', we turn to the disposal of assets, customers and even arrived, pledge other banks seized were gone." The credit source said, "The last branch profits by impact of the disposal of the head office blamed inadequate, wrong are we. "

Eat a cutting wisdom. When the bank and then treat other businesses, especially in the balance of the bank loan less, relatively easy to shrink lending businesses, "it can close on the land, we are a listed company and not a charity, all play by the rules . "

Formation Rescue League

In Foshan steel trade, or in some previous credit critical situation, the game between the bank will also game between banks and enterprises, such a phenomenon often produces.

The results are clear, as mentioned earlier, a bank loan income, other banks because of damage to the interests of the follow-up, panic spread, businesses that sooner or later is "dead", it lost the willingness to cooperate.

Therefore, once the outbreak of the crisis is that a lot of violent, sick as a mountain down.

But soon after, government departments, regulatory institutions and banks will realize that this "collective irrational" to form some sort of coordination mechanisms. The critical situation in Shanghai steel trade, and there have been banks and steel trade Coordination Group to participate in the Chamber of Commerce; Foshan, Shunde steel trade bank debt Commission (the "Debt Commission") established this year in, there are 32 member banks.

With the establishment of the Authority's debt, bank and heard in an interview with this newspaper, starting middle of this year, somewhat calm panic. Some banks will stage characterized as "steel trade relief period", different from the past nearly a year of "risk outbreak."

It is one of the leading bank debt Authority CITIC Bank [ 2.37% funding research report ] introduces, at present debt Authority has preliminarily thoroughly the steel trade and market conditions, including the bank, including the member banks are willing to maintain stability and current credit policy The steel trade credit amount. "Steel trade financing bubble, but not at the risk of the mid-'squeeze the bubble', that will only make the risk of proliferation, now even more important to maintain cash flow. CITIC Bank is willing to be to maintain market stability, prevention and control of risk spreading, restore market confidence the main force. "CITIC Bank Guangzhou Branch (now in charge of Foshan two branches) Credit Management Department sources said.

Another newspaper reporter learned from the relevant local authorities, credit risk treatment for the steel trade, the government has a strong intervention, coordination of the parties, uniform pace, take the hosting line system, category management techniques, split ring restructuring, syndicated loans, stable business credit. Bank loan for the rapid resumption behavior steel trade enterprises have significantly eased, steel trade industry, market confidence is gradually restored.

As for those who have excessive bleeding tendency inability to maintain or Tao Feizhai merchants, CITIC said the bank's approach is "control (credit) of the total," but between the steel trade enterprise "structural adjustment", to promote the survival of the fittest.

Up to now, CITIC side said, "No one has done (steel trade enterprises bad) assets resale package, the main effort in the enterprise funds to revitalize and restore production and management, to ensure maximum benefit businesses and banks."

As for the previously mentioned steel trade merchants that UNPROFOR mutual panic, debt committee to try a "isolation mode." CITIC introduces said, according to the Convention on the debt committee member banks in loan principal operating capacity after the loss of subordinated loans and weak, and the guarantor have agreed to continue to guarantee the ability to assume security responsibilities and truthfully declare their assets to the creditor banks and regulators accept the premise creditor banks Next, you can to some extent be "isolated", that first debt recovery for borrowers, guarantors were again less than some recourse, to avoid the risk of loss to expand.

Such a "rescue", for the survival of businesses, is an opportunity to revitalize the; to a public bank, perhaps just helpless in the "lesser of two evils': Banks ready losses, Right now the fight, but the extent of the loss is minimized. Seen from the analysis of a number of local banks on the "First Financial Daily", the macro-economic rebound and gradual correction in asset prices, it may be the only way out of this crisis in the steel trade and multi-party.

Two years later revelation

In Foshan, there is a problem is the bank and both sides are thinking: the Yangtze River Delta in early 2012 when the steel trade crisis, the situation in South China city of Foshan steel trade good; until the end of last year, Foshan banking steel trade bad debt has gone up but did not soaring. But why focus on the outbreak steel trade loans adverse events, two years late or come up?

The reason for the late two years, many respondents to the newspaper provides an idea: The current period of loose monetary policy into the digestion period, and eventually digest the bulk of the funds in real estate prices has entered a period of adjustment, the fire crisis, always along financing "where the highest leverage gradually burn down."

In this logic, the most popular words, "ten bottles a few cover" financial game, "cover" the less, industrial hollow dug, the more first into crisis.

"All the issues to simplify, to two points, the first is the lack of liquidity, asset prices and the second is shrinking." The management of a bank branch analysts said.

Foshan, a steel trade security company official told this reporter, music from the steel trade and Zhou Ning steel trade (Yangtze steel trading business and more from Fujian Zhou Ning) have some differences on the model, such as music from the steel repeat mortgage problem is not obvious, "Sales to model" (Foshan local manufacturing industry developed) also makes steel trading steady demand, industrial steel demand more.

In addition, the official said, the music from the steel trading business locals more deterioration in the business environment when the "foot" is mostly foreigners, locals in general are willing to support a period of time, on the one hand Since the locals local home buyers are more jargon is "asset thicker" can stop for a while, on the other hand because of all the local gossip Qierlaoxiao, foot cost is large.

However, even two years later, the crisis still to come, this is why? Steel trade between the Yangtze River Delta crisis and the difficulties encountered in Foshan, whether interlinked nature?

From the regulatory side to the bank and, this newspaper visited ask this question, were collected from four answers.

First, the steel stumbled steel trade enterprise profits earned gradually being emptied. And years ago, "even if it does not sell as long as the stockpile will be able to make money," the market conditions compared to industry fundamentals deteriorate, the Yangtze River Delta and Foshan steel trade issues to face together.

Second, even without the Yangtze River over the financing so "crazy", but Foshan Steel Trade and Industry hollow phenomenon still not be underestimated. "Several steel trading company with an actual controller, a couple of actual control of their own mutual insurance companies, loan funds will be used to fry fry mine, good room good car, these phenomena are very common." One local bank sources said, monetary easing will bring two results, earnings various asset prices far outweigh the Industrial itself, while steel trading business in bank loans is extremely simple, the results of the superposition of these two, it will lead to overdeveloped financial and gradually become financing platform Industries.

Third, a similar pattern of UNPROFOR mutual insurance, bills financing. The former makes the risk of a lack of isolation mechanism, which raised the financing leverage and financing costs. The well-developed private lending, but also exacerbated the degree of risk.

Fourth, it is the bank's operating mechanism of the decision. Although the steel trading business and the Yangtze River Delta, Foshan steel trading business is completely different groups, but the vast majority of bank loans is nationwide, Bank of risk control policy is a national. "The steel industry," especially the "steel trade," since the beginning of 2012, is the structural adjustment credit in the banks shunned plate; and "Zero trade industry" also need to focus on.

"Risk is an objective reality, but people concerned about the risk for deliberately or excessive concern itself increases the risk of being concerned about the subject." Person, a financial research universities that risk and credit are two sides of the coin, "Even if your objective risk did not increase When everyone concerned about you not believe you, your available credit limit sharp decline, increased risk of natural really. "

Of course, no smoke without fire. Steel trade loans for concern is the macroeconomic level from the entire country to see the objective reality of overcapacity initiatives taken.

"Last year we gave over the head office sent a (steel trade) risk early warning, situation is similar to other banks." Foshan branch of a joint-stock bank official said, "Without Shanghai steel trade issues, the bank will not 'too sensible', a see signs right here, to quickly close the loan. "

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