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 nation’s 10 largest banks participated in US$14.7 billion of loans in the first eight months of the year, from US$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 Corp (中國旭光高新材料) 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 last year, according to the Financial Supervisory Commission (FSC).
As local lenders use up more of their 100 percent quota and China’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 (台北富邦銀行).
“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 (陳恩光), head of the corporate finance department at Taipei Fubon, said at a conference on Wednesday in Taipei.
Taiwan eased rules in 2011 on lending to Chinese companies, who in turn have flocked to Taiwan 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 might allow Taiwanese banks to improve the asset quality of their portfolios, Thomas Wu, senior vice president of corporate finance at Bank of Taiwan (台灣銀行), 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.” Labixiaoxin Snacks Group Ltd (蠟筆小新食品) 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 (台新銀行) and First Commercial Bank Co (第一銀行) took part in a US$75 million loan to the company.