Hefty Bank Fees Bleed SMEs Dry

Chinese banks are squeezing businesses with high fees based on a percentage of the loans. A business taking out ¥500 million loan will pay about ¥10 million in fees! As one businessman put it, some companies are working only for the bank, and when they cannot endure it any longer, they close their doors.

A study done in Yiwu, Zhejiang found bank fees were costing SMEs between 2 and 5 percent of loan value. Even though interest rates are falling, the high fees more than make up for lower rates.

In one case there is a medium sized enterprise in Yiwu. The company has ¥192 million in total credit, ¥145 is loans, ¥8.8 million is banker acceptances, ¥38 million is domestic letters of credit. There are 7 banks cooperating on the financing. Of the ¥192 million in credit, the company only laid its hands on ¥144 million and its composite financing rate inclusive of all fees and interest works out to an annualized 10.02%!

In the past year, this company paid ¥14.74 million to the banks. Of that, ¥9.8 million was interest costs from loans with rates of 6.16% to 8.25%. Other fees included ¥700,000 yuan to "buy deposits"; discounted bills interest expenses of ¥1,080,000; intermediary costs and other expenses ¥2.76 million; loan maturity costs ¥300,000; service charge and other expenses ¥50,000 yuan; assessment fees, insurance and other expenses of ¥50,000. In sum, that comes to ¥4.94 million, or roughly 33% of the total cost, which translates into the equivalent of 3.27% in interest.

On top of that, since 2H 2013, the banks in Yiwu calculate interest monthly and so compounding has a much greater effect on total costs. A 6% interest loan costs 6.09% if interest is calculated twice a year, but 6.167% if calculated monthly. The difference is ¥31,000 in interest on a ¥100 million loan.

One Miss Song borrowed and repaid loans, then borrowed more to buy imported machines as her garment business grew in size. Between all of the bank fees, she eventually lost ¥6 million. Her company was seized and the assets sold at auction.

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