China’s Henan Said to Ask Banks to Support Struggling Firms

Aug 13, 2014 10:22 pm ET

(Updates with analyst’s comment in fourth paragraph.)

Aug. 14 (Bloomberg) -- The Henan provincial government in central China has lobbied banks to support struggling local coal and solar companies, according to government officials familiar with the talks.

Local authorities asked eight lenders, including Bank of China Ltd. and Industrial & Commercial Bank of China Ltd., to keep lending to the region’s three largest coal producers and to offer preferential interest rates, according to two officials, citing a meeting the government initiated last week. The officials asked not to be identified because they weren’t authorized to speak publicly about the matter.

Pressure to prop up weak companies could swell bad-loan risks for the banks, already girding for what analysts forecast will be the nation’s weakest full-year economic growth since 1990. In April, in the eastern city of Wenzhou, the government urged lenders to support firms that were short of collateral because of declines in property prices.

“Banks have become more risk-averse in a slowing economy,” Tang Yayun, a Shanghai-based analyst at Northeast Securities Co., said by phone today. “They don’t want to end up with a pile of non-performing debt,” Tang said, adding that lenders were likely to be increasingly resistant to local officials’ urgings.

Henan Energy

In Henan, the companies are Henan Energy & Chemical Industry Group, Zhengzhou Coal Industry Group and China Pingmei Shenma Group, according to the officials. The three generated around 341.7 billion yuan ($55.5 billion) of revenue in 2013, or equal to the nation’s top coal producer Shenhua Group, according to China National Coal Association. Henan was China’s fifth largest coal producing region in 2012.

China’s broadest measure of new credit plunged to the lowest since the global financial crisis in July and industrial output unexpectedly slowed, reports showed yesterday, highlighting the risk of a deeper economic slowdown. Gross domestic product is forecast to rise 7.4 percent this year.

Chinese banks had the biggest quarterly increase in bad loans since 2005 in the first three months of this year. Nonperforming loans rose by 54 billion yuan to 646.1 billion yuan, the highest level since September 2008, according to the China Banking Regulatory Commission. Bad loans were 1.04 percent of total lending, up from 1 percent three months earlier.

PBOC View

Lenders have become more cautious about extending credit to the real-estate industry, local-government financing vehicles and sectors with overcapacity, such as steel and cement, the central bank’s Financial News reported today. The newspaper cited Sheng Songcheng, head of the statistics department of the People’s Bank of China.

China’s coal companies are struggling after prices in the world’s largest producing nation fell to the lowest in seven years. More than 70 percent of coal companies are losing money and 50 percent of them aren’t paying wages on time, according to the China Coal Industry Association. They are also having difficulty paying loans to banks, according to Helen Lau, an analyst at UOB-Kay Hian Ltd. in Hong Kong.

Banks were also urged to keep financing Phoenix Photovoltaic Technology Co. Officials from the local branch of the central bank and China’s top banking regulator also participated in the meeting, the people said.

An official at the general office of Henan provincial government declined to comment and refused to give a name. Beijing-based press officers at the Bank of China and ICBC didn’t immediately respond to a text message seeking comment.

Two calls to Henan Energy and Chemical Industry Group weren’t picked up. Two calls each to the press office of Pingmei Shenma and Zhengzhou Coal Industry went unanswered. The office number for Phoenix Photovoltaic, a solar wafer producer, was out of service.

--With assistance from Feifei Shen and Aipeng Soo in Beijing and Jun Luo in Shanghai.