By Justina Lee
August 28, 2014 6:00 PM EDT
Taiwan’s banks cut loans to Chinese companies by 19 percent this year as the risk of credit defaults in Asia’s biggest economy increase.
The island’s 10 largest banks participated in $14.7 billion of loans in the first eight months of 2014, from $18.2 billion a year earlier, data compiled by Bloomberg show. Confidence has deteriorated amid the alleged misuse of collateral by borrowers in the Chinese port city of Qingdao, while research companies have accused some firms such as China Lumena New Materials (67) Corp. of misrepresenting their financial conditions.
The ratio of banks’ lending and investment to China as a percentage of their total net worth rose to 62 percent in June from 58 percent at the end of 2013, according to the Financial Supervisory Commission. As local lenders use up more of their 100 percent quota andChina’s credit risk mounts, there may be a “flight to quality” from private enterprises to state-owned entities, according to Taipei Fubon Commercial Bank Co.
“Our contact with many Chinese companies is just loan syndication, so there’s no multi-layered relationship to cross-check whether there are any problems with the company,” Stephen Chan, head of the corporate finance department at Taipei Fubon Commercial Bank, said at an Aug. 27 conference in the city. “Now with less quota left to lend to Chinese companies, we have to think of how to best use it.”
Asset Quality
Taiwan’s regulators eased rules in 2011 on lending to Chinese companies, who in turn have flocked to the island for credit as onshore funding conditions tightened. Local banks are now becoming more concerned because China’s economic growth this year is forecast at the slowest pace since 1990.
China announced new rules in May permitting its companies to independently sign contracts to secure offshore loans with domestic guarantees. That may allow Taiwanese banks to improve the asset quality of their portfolios, Thomas Wu, senior vice president of corporate finance at Bank of Taiwan, the island’s largest bank by assets, said at the same conference.
Qingdao Port started investigations in June on whether Chinese firms were pledging the same stock of metals as collateral to obtain multiple loans.
Short-selling firm Glaucus Research Group California LLC initiated coverage of China Lumena New Materials with a strong sell rating in March, saying the firm had made “numerous material misrepresentations to investors.” It has been suspended from trading since March and hasn’t released last year’s earnings.
Labixiaoxin Snacks Group Ltd. (1262)was suspended from trading for three months this year as it delayed release of its financial statements. Its auditor PricewaterhouseCoopers LLP withdrew. Taiwanese banks including Taishin International Bank and First Commercial Bank Co. took part in a $75 million loan to the company.
To contact the reporter on this story: Justina Lee in Taipei atjlee1489@bloomberg.net
To contact the editors responsible for this story: James Regan atjregan19@bloomberg.net Simon Harvey, Andrew Janes
http://mobile.bloomberg.com/news/2014-08-28/taiwan-banks-cut-loans-to-chinese-firms-by-19-as-risks-mount.html
