Liquidity crisis 'isolated': Official

The recent liquidity crisis among some financing guarantee companies involved "isolated" cases and won't affect the whole financial system in a substantial way, said a senior official at China's banking watchdog on Tuesday.

Wen Haixing, deputy director-general of the financing guarantee department at the China Banking Regulatory Commission, said generally financing guarantee businesses have been developing quite well after Beijing tightened regulation over the industry last year.

By the end of 2011, outstanding guarantees amounted to 1.27 trillion yuan ($199.60 billion), up by 39.8 percent year-on-year, data released by the CBRC on Tuesday showed.

In 2010, the guarantees registered a growth of 64.6 percent, with a loss ratio of 0.04 percent.

Provisions for guarantee compensation totaled 31.6 billion yuan by the end of 2011, a surge of 82.7 percent from one year earlier.

Guarantees for loans to small and medium-sized enterprises went up by 40.5 percent year-on-year to 985.7 billion yuan by the end of 2010, said the CBRC.

Media reported earlier that some financing guarantee companies are suffering from a cash crunch and bosses are "running away" under liquidity pressure.

A cash crunch at the Guangzhou-based Huading Guarantee Co Ltd affected about 18 lenders and more than 400 local SMEs. Executives at Huading and another guarantee company were detained for investigation in March.

Wen warned governments at the local level to keep a close eye out for risky loans. Uncertainties related to financing guarantee companies still exist, especially given some of them have misused clients' security deposits to make loans or investments.

In June 2011, the CBRC required banks to examine their guarantee business to prevent the risky practices undertaken by some companies from spreading to commercial lenders.

By the end of 2011, the number of lenders that cooperated with financing guarantee companies had risen by 32.6 percent year-on-year to 15,997, according to statistics from the CBRC.

Concerns over guarantee companies have been rising since last year as some of the companies sought to profit by offering loans with interest rates higher than 50 percent while bank credit was tightened to curb inflation and enterprises were thirsty for capital to maintain operations.

In the coastal city of Xiamen, in Fujian province, local media reported last year that in just two months three guarantee companies were hit by non-performing loans ranging from 300 million yuan ($46 million) to 3 billion yuan.

wangxiaotian@chinadaily.com.cn