According to the Financial Association news on December 19 (reporter Shi Sitong), in recent years, under the complex economic environment, the risk of loan defaults from Banks has continued to rise, and the number of litigation disputes involving some Banks has also been increasing.

Recently, there has been new progress in the 1.6 billion yuan lawsuit case involving Bank Of Guiyang. According to the announcement, the Bank Of Guiyang Shuanglong Branch had previously granted a credit of 1.6 billion yuan to Guizhou International Commodity Supply Chain Management Co., Ltd., but after the due date, there remains 1.584 billion principal and related interest that is difficult to recover. Subsequently, the Bank Of Guiyang filed a lawsuit, and the first-instance judgment also supported most of the bank's litigation claims.

However, experts believe that in the long term, an increase in non-performing loans may also put pressure on the Asset quality and profitability of Banks. Moreover, due to the other company potentially facing financial difficulties and uncertainties regarding the liquidation value of collateral, there remains a possibility that Bank Of Guiyang may not be able to recover the entire debt even if it wins the case.

In fact, from the financial data, the performance of Bank Of Guiyang has already been highlighted. As of the third quarter of this year, it has recorded a year-on-year decline in Net income for six consecutive quarters, and during the same period, the revenue scale also experienced year-on-year declines in five quarters. At the same time, the bank's latest net interest margin is 1.80%, down by 38 basis points from the beginning of the year.

With a credit of 1.6 billion yuan, after three years, over 1.584 billion principal and interest remain unrecoverable.

Specifically, in June 2021, Bank Of Guiyang Shuanglong Branch signed a "Comprehensive Credit Agreement" with Guizhou International Commodity Supply Chain Management Co., Ltd. (hereinafter referred to as "Guizhou International Commodity"), agreeing to grant credit of 1.6 billion yuan (exposure amount) for a term of three years. At the same time, it also signed "Maximum Guarantee Contracts," "Maximum Mortgage Contracts," and "Maximum Pledge Contracts" with nine guarantors.

According to Bank Of Guiyang, in accordance with the provisions of the "Comprehensive Credit Agreement," its Shuanglong Branch signed a series of working capital loan contracts and commercial bill bank acceptance agreements with Guizhou International Commodity. After the relevant contracts were signed, the Shuanglong Branch has also completed its corresponding loan disbursement and bill acceptance obligations.

However, Guizhou International Commodity did not repay the relevant loans and interest as well as the note advances on time as stipulated in the contract. At the same time, its relevant guarantors also failed to fulfill their corresponding guarantee obligations on time. Therefore, the Bank Of Guiyang Shuanglong Branch filed a lawsuit with the Intermediate People's Court of Guiyang.

From its litigation requests, the Bank Of Guiyang Shuanglong Branch hopes that Guizhou International Commodity will immediately repay the relevant amounts involved in the case, including the principal of the loan, the principal of the bill advances, the amounts of bills that have not yet matured, and the interest, penalty interest, and compound interest calculated in accordance with the contract, which totals approximately 1.658 billion yuan. In addition, the bank also hopes to have priority rights to repayment for the related collateral provided by the guarantors, such as mortgaged and pledged houses and equity, and some guarantors are to bear joint repayment liability.

In terms of the judgment result, the court supported the vast majority of the requests of the Bank Of Guiyang Shuanglong Branch. This includes that Guizhou International Commodity needs to pay the loan principal of 0.292 billion yuan and interest of 0.7323 million yuan (as of October 18, 2024, same below) as well as penalty interest and compound interest; pay the bank's bill advance of 1.292 billion yuan and overdue interest of 0.191 billion yuan, and continue to calculate overdue interest.

At the same time, the Bank Of Guiyang Shuanglong Branch has priority rights to repayment for the relevant collateral and pledged assets in a certain range, and some guarantors are also required to bear joint repayment responsibility.

Regarding the impact of this lawsuit, the Bank Of Guiyang stated that the company has strictly classified the loans and advances involved in this lawsuit as non-performing in accordance with the requirements of the 'Risk Classification Methods for Financial Assets of Commercial Banks,' and has fully recognized the impairment loss on the involved loans and advances, estimating that this lawsuit will not have a substantial impact on the company's current profits or future profits.

There may be loopholes in risk control, as there have been two previous disputes involving over 0.3 billion yuan.

However, industry insiders believe that due to the possibility of the opposing company facing financial difficulties, even if victorious, there is still a risk of failing to timely and fully repay the debt.

'The recovery of funds may still be at risk, as it depends on the other party's repayment ability, and the realizable value of the collateral is uncertain,' said Wang Pengbo, Chief Analyst of the Financial Industry at Broadcom Consulting. At the same time, Zheng Jiawei, Chief Analyst for Fixed Income at Yongxing Securities, pointed out that the opposing company has already fallen into serious operational crisis, making asset realization difficult, and the Bank Of Guiyang may find it very difficult to successfully recover all funds.

In fact, this is not the only related dispute involving the Bank Of Guiyang in recent years. Previously, the bank disclosed two lawsuits involving amounts exceeding 0.3 billion yuan, including cases where loans were still difficult to recover after winning.

Among them, the case of the Bank Of Guiyang Wudang Branch versus Zhenyuan Biaoju Tourism Culture Co., Ltd. regarding a loan contract dispute involves a project loan principal of 0.35 billion yuan, as well as interest, penalties, compound interest, and liquidated damages. Ultimately, after mediation among the parties involved in the lawsuit, the Bank Of Guiyang transferred all the debt assets related to the lawsuit.

Additionally, the Bank Of Guiyang has been in court with Guizhou Jiuzhou Mingcheng Real Estate Development Co., Ltd. and others over disputes related to a trust beneficial rights transfer contract, involving a debt investment principal of approximately 0.315 billion yuan and related interest, penalties, etc. Ultimately, the Bank Of Guiyang won the case, but after exhausting property investigation measures, all the discovered assets of the judgment debtor had been disposed of, and this execution process concluded.

In this regard, Zheng Jiawei believes that the frequent occurrence of the aforementioned disputes in recent years may be related to the local economic environment. From the perspective of the bank itself, this may indicate that there are certain loopholes in risk control or pre-loan audits, with the assessment of the financial status and operational prospects of enterprises being insufficiently accurate or lacking supervision and management after loan issuance, failing to promptly identify changes in the operational risks of enterprises.

In Wang Pengbo's view, the current complex and variable economic situation has made some industries and enterprises struggle, leading to a decline in repayment ability and an increase in loan default risks for banks, which is a common issue faced by the banking industry. At the same time, the regional economic structure and industrial characteristics of the Bank Of Guiyang may lead to a higher concentration of loans to certain specific industries or enterprises.

Performance pressure is evident, with net income declining for six consecutive quarters.

Regarding the impact of this lawsuit on the industry’s performance, Zheng Jiawei believes that although the Bank Of Guiyang has included the loans and advances involved in this lawsuit as non-performing and has fully provisioned for asset impairment related to the loans and advances, in the long term, an increase in non-performing loans will still put pressure on the bank's asset quality and profitability.

From the financial data, the performance of the Bank Of Guiyang has continued to decline this year. In the first three quarters, the bank achieved revenue of 10.937 billion yuan, a year-on-year decrease of 4.42%, and a net income attributable to shareholders of the parent company of 3.97 billion yuan, a year-on-year decrease of 6.81%.

In response, Bank Of Guiyang stated that due to factors such as granting profits to the real economy, adjusting asset structure, and a continuous decline in market interest rates, the net interest margin has narrowed. Data shows that the latest net interest margin for the bank in the first three quarters is 1.80%, a decrease of 38 basis points from the beginning of the year.

In fact, in recent years, as the industry's interest margin level has continued to decline, the performance pressure on Bank Of Guiyang has become apparent. Wind data shows that when split by quarter, the bank has experienced a year-on-year decline in net income attributable to shareholders for six consecutive quarters, during which the revenue scale has also seen five quarters of year-on-year decline.

In terms of asset quality, in the first half of this year, the bank's non-performing loan ratio has risen, but there has been significant improvement in the third quarter. As of the end of September, Bank Of Guiyang's non-performing loan ratio is 1.57%, a decrease of 0.02 percentage points from the beginning of the year; during the same period, the provision coverage ratio further increased to 262.53%, an increase of 18.03 percentage points from the beginning of the year.

Considering the aforementioned 1.6 billion yuan legal case, Wang Pengbo pointed out that regional banks will more or less face similar issues. Due to factors like business structure and regional economic environment, there may be an increase in non-performing loan ratios and a rise in litigation disputes. Looking ahead, he believes that the loans and advances involved in this lawsuit have already been categorized as non-performing, and Bank Of Guiyang may become more cautious in future credit issuance, re-evaluating and adjusting credit limits and loan conditions for related industries or enterprises.

At the same time, Zheng Jiawei also suggested that Bank Of Guiyang needs to strengthen its risk identification and assessment capabilities in the future, improve its pre-loan review mechanisms, not only focusing on financial indicators of enterprises but also comprehensively considering the industry prospects and management teams of the enterprises. It is essential to enhance post-loan management, establish a dynamic monitoring mechanism, and timely identify and address potential risks, further improving risk prevention and control levels.