Business / Markets

Wenzhou's small firms still struggle to obtain loans

(Xinhua) Updated: 2012-07-07 14:17

Small and medium-sized enterprises in Wenzhou are finding bank loans increasingly hard to obtain as the city's banks face a rising non-performing loan (NPL) ratio.

The NPL ratio of the banking industry in the east China city has risen for 11 straight months to reach 2.43 percent by the end of May, much higher than the country's average level of 0.9 percent by the end of the first quarter, statistics from the financial office of Wenzhou city showed.

With the NPL ratio on the rise due to the city's private lending crisis and banks' tightening credit control, small and medium-sized enterprises are finding it increasingly difficult to get loans, according to a report by Friday's China Securities Journal.

The report said the damaged credibility caused by the debt crisis last year had made banks ever more cautious to extend loans, citing an anonymous employee in a guarantee agency.

Wenzhou, famous for its private businesses, was hit by a debt crisis last year after some 100 managers or heads of private companies were reported to have disappeared, committed suicide or declared bankruptcy for failing to repay the crippling debt in the underground financing market.

The crisis has prompted the government to set up a pilot zone there to regulate private financing activities.

As part of the pilot scheme, a private lending registration service center was inaugurated in Wenzhou in late April to serve as an intermediary between borrowers and lenders in an attempt to standardize private lending in the city.

As of the end of May, the center had seen 16 transactions done, with an average annual rate of 21.7 percent.

Analysts said the newly-found center could not significantly ease financing pressures for the small and medium-sized firms due to the city's relatively low transaction volumes and high borrowing costs.

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