China Ting Group Holdings Ltd., a garment maker, said two borrowers defaulted on entrusted loans it made through Ningbo Bank Corp. and Bank of Communications Ltd. The stock fell.
Zhongdou Group Holdings Ltd. and Hangzhou Zhongdou Shopping Centre Co. failed to make interest payments on schedule on loans worth 160 million yuan ($26 million), China Ting said in a Hong Kong exchange filing yesterday.
Entrusted loans, advances between companies arranged through banks, are part of China’s shadow banking system that regulators are seeking to rein in. Some of the entrusted funds, which totaled 8.2 trillion yuan as of the end of 2013, were being directed to industries that face lending curbs from the government, according to the People’s Bank of China.
“Ningbo Bank Corp. confirms that they have commenced legal proceedings in respect of their loan arrangements with Zhongdou Group,” and Bank of Communications is prepared to take action, China Ting said.
The stock fell as much as 4.6 percent to 42 Hong Kong cents, and was down 3.4 percent to 42.5 Hong Kong cents at 10:55 a.m. in local trading. China Ting fell 7.4 percent yesterday.
Yang Dingguo, owner of the two companies that had borrowed the funds, couldn’t be contacted, China Ting said, citing media reports it didn’t identify.
China’s 10 largest lenders reported overdue loans reached 588 billion yuan at the end of 2013, a 21 percent increase from a year earlier to the highest level since at least 2009. The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings.
The number of entrusted loans made by publicly traded companies rose 43 percent from 2012 to 397 cases in 2013, the central bank said in its 2014 financial stability report.
China’s aggregate financing, the broadest measure of new credit that includes bank lending and less-regulated products like entrusted loans, fell to 1.4 trillion yuan in May from 1.55 trillion yuan in April, according to the central bank.