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Bad loans at Wenzhou banks surge as China's economy slows-report

SHANGHAI, Oct 9 (Reuters) - The non-performing loan (NPL) ratio for banks in China's entrepreneurial hub of Wenzhou has surged this year, official media reported on Tuesday, the latest sign of declining credit quality at Chinese banks amid a slowing economy.

The NPL ratio for banks in Wenzhou reached 3 percent by the end of August, up 1.64 percentage points since the start of 2012 and 0.15 percentage points since the end of July, the official China Securities Journal reported, citing unnamed officials in Wenzhou. At end-August 2011, the ratio was only 0.37 percent.

Banks and regulators do not officially publish city-level NPL ratios, but a state media report in July said that Wenzhou's end-June NPL ratio of 2.69 percent was the highest in a decade. That would make the latest figure a new decade-high.

Wenzhou, in Zhejiang province on China's east coast, is famous as a center of small factories run by private entrepreneurs, as well as for the vibrant grey-market lenders who finance them.

The city is widely seen as a leading indicator of the state of China's non-state economy. A string of bankruptcies last year - including suicides and disappearances by entrepreneurs unable to repay underground loans - prompted Premier Wen Jiabao to visit the city, where he urged banks to lend more to small businesses.

The report did not name specific banks, but said that the NPL ratio in Wenzhou for an unnamed, nationwide joint-stock based in southern China was 9.09 percent in August, up 1.21 percentage points from July.

In March, China's cabinet approved the launch of a financial reform pilot project in Wenzhou, which aims to bring underground, privately-financed lending institutions out of the shadows.

Wenzhou's non-peforming bank loans totaled 21 billion yuan ($3.34 billion) by the end of August, the paper reported.

($1 = 6.2872 Chinese yuan)

(Reporting by Gabriel Wildau; Editing by Eric Meijer)

((Gabriel.Wildau@thomsonreuters.com)(+86 21 6104-1783)(Reuters Messaging: gabriel.wildau.thomsonreuters.com@reuters.net))

Keywords: CHINA ECONOMY/WENZHOU