CREDIT TIGHTENING

2014/10/23

From：Macau Business Daily

More non-performing loans are coming to light. From Mainland Chinese banks, which are now avoiding risky borrowers. More selectivity feeds back to less credit for gamblers and junkets in Macau.

Recent data shows that non-performing loans continue to rise in Chinese banks and experts believe the trend is just beginning to create some difficult challenges ahead. As the problem becomes more apparent, the Mainland’s bigger financial institutions are already avoiding risky borrowers and becoming more selective about their clients, which means that credit flow to gamblers in Macau could be hurt.
According to data compiled by SNL Financial, the five biggest lenders in China saw their non-performing loans (NPL) increase in the first six months of the year. The Industrial and Commercial Bank of China saw its NPL ratio (non-performing loans as a percentage of total loans) increase from 0.94 percent in December 31 to 0.99 percent in June 30. Currently, China’s largest bank has 150 billion yuan at risk of never being paid. But the situation is similar throughout the Chinese financial system. Agricultural Bank of China has a NPL ratio of 1.24 percent, China construction Bank 1.04 percent and Bank of China 1.02 percent.
“I expect NPL will continue to be revealed. One thing that was keeping NPL figures from coming out was that loans could be rolled over or re-extended and repackaged in various ways”, Kellee Tsai, professor and head of division of social science at the Hong Kong University of Science and Technology told SNL Financial. The academic expects these delinquent loans to continue to rise in the future as property prices in China continue to soften, making it harder to sustain the expected returns.
The problem with NPL is also that each country has its own system of calculating them, making it harder to get the real picture. Even if 1 to 2 percent of NPL ratio is a small percentage compared to other countries, the rapid growth recorded this year should be a warning sign for the future. Some smaller banks in China are already reporting a much higher presence of non-performing loans in their balance sheets, with ratios exceeding 2 percent.
Kellee Tsai stressed to SNL Financial that draft rules are “badly needed” and that it is difficult to coax Chinese banks into being transparent about the destination of their loans and the ability of the borrower to repay.
The situation is bad news for Macau, especially junkets and gamblers who depend on credit to operate and play. The diminishing credit lines this year have been one of the main drivers of the revenue plunge in Macau, namely among high rollers. The VIP revenues have declined double digit all year and in October are likely to drop more than 30 percent, analysts believe.

October revenues to drop 22pct

Analysts are betting on a decline of 22 percent for gaming revenues in October, the fifth straight month in the red for the gaming industry here. Last week (between October 13 and 19) the average daily revenues in casinos amounted to MOP789 million, 5 percent lower than the previous week (MOP823 million), Barclays said yesterday. The UK bank is expecting gaming revenues to decrease 21 to 23 percent. The estimation is in line with the rest of the market. Wells Fargo is expecting the fall to be between 20 to 23 percent this month, while Sterne Agee advanced with a 22 percent drop prediction. Revenues from mass floors are likely to stay flat in October and VIP will probably plunge more than 30 percent, analysts say.

Copyright@Macau Business Daily