2007 Survey of Corporate Credit Risk Management in China

Transcription

1 2007 Survey of Corporate Credit Risk Management in China Xavier Farcot Deputy Regional Managing Director Greater China, Coface Coface copyright, conditions of use : You may copy and publish the information with the consensus of Coface, provided that you do not make commercial use of it and that you indicate clearly that it originates from Coface. The information is given without guarantee and does not bind Coface in any way Survey of Corporate Credit Risk Management in China

2 Who is Coface? Coface is rated AA (stable outlook) by Fitch Ratings, AA (negative outlook) by S&P and Aa3 (stable outlook) by Moody's Coface is a subsidiary of Natixis A world leader in credit insurance, company information & ratings, receivables management and factoring services 18% of world s insurance market (S&P, Fitch, May 2006) Leading export credit insurer 25% market share (Fitch, May 2006) With direct subsidiaries in 65 countries and able to provide credit insurance and credit management services in 93 countries via CreditAlliance network Common Risk System, an unique worldwide database of 50 million companies which flags payment incidents in 450 billion euros of trade flows Over 45% of the world's 500 largest corporate groups are already customers of Coface Turnover of 1,571M Euro in 2007 The manager of the French government export guarantees 2007 Survey of Corporate Credit Risk Management in China 2

3 Coface CreditAlliance Network Canada United States Mexico Costa Rica Panama Venezuela Colombia Ecuador Peru Brazil Germany Austria Belgium Denmark Spain France Greece Ireland Italy Norway Netherland s Portugal United Kingdom Sweden Switzerland Bulgaria Croatia Hungary Estonia Latvia Lithuania Malta Poland Czech Republic Romania Russia Slovakia Slovenia Turkey Ukraine Cyprus Tunisia Israel Syria Iran Morocco Lebanon Jordan Bahrain India Algeria Egypt Kuwait Qatar Saudi Arabia Mali Oman UAE Senegal Burkina Faso Yemen Ivory Coast Benin Togo Cameroon China Thailand Japan South Korea Taiwan Hong Kong Philippines Malaysia Singapore Indonesia Chile Argentina South Africa Zimbabwe Australia New Zealand 2007 Survey of Corporate Credit Risk Management in China 3

4 Coface in China Organization Coface China (Shanghai & Guangzhou) Coface Credit insurance Company Beijing Rep. Office Kompass China (Beijing & Guangzhou) Services available Trade credit insurance (domestic), with Ping An Business credit information & ratings International debt collection services Kompass marketing information 2007 Survey of Corporate Credit Risk Management in China 4

5 Survey report 1. Basic information on interviewed companies 2. Payment trend 3. Impact on risk mitigation strategy 4. Sector analysis 2007 Survey of Corporate Credit Risk Management in China 5

6 BASIC INFORMATION ON INTERVIEWED COMPANIES 2007 Survey of Corporate Credit Risk Management in China 6

7 Background Objectives: To understand the general status of the credit management in companies based in Mainland China To understand the domestic payment experience of companies based in China Payment survey started in 2003 this is the fifth edition Survey period took place from October to December ,500 companies with operations in Mainland China have been approached 547 valid questionnaires have been collected 2007 Survey of Corporate Credit Risk Management in China 7

8 Nature and types of companies interviewed Nature of Companies Wholly Owned Foreign Company 51.7% Joint Venture 17.4% State Owned Company 9.9% Collective Owned Company 1.6% Private Owned Company 19.4% Types of Companies Retailers 1.8% Services 10.1% Manufacturers 64.5% Traders & wholesalers 23.6% 2007 Survey of Corporate Credit Risk Management in China 8

9 Location and industries of companies interviewed Southern China 13.9% Western and Middle China 6.2% Eastern China (excluding Shanghai) 32.5% Northern China 15.9% Shanghai 31.4% Chemicals Construction Food & Beverage Household Electric & Electronics Industrial Machinery & Electronics Information Technology Paper & Printing Perfumes/Cosmetics & Personal Care Pharmaceuticals Steel & Metals Telecommunications Textiles Transportation Others 2007 Survey of Corporate Credit Risk Management in China 9

10 PAYMENT TREND 2007 Survey of Corporate Credit Risk Management in China 10

11 Open account : the most favorite payment term More than 50% of companies interviewed use the open account as their main terms of payments 60% 54.5% 54.1% 40% 20% 21.0% 24.0% 25.8% 19.9% % Advanced payment Cash on delivery Open Account 0.5% 0.2% Consignment One answer 2007 Survey of Corporate Credit Risk Management in China 11

12 Open account : increasing practice over the last 2 years More than 40% of companies interviewed have increased their sales on open accounts 60% 50% 40% 30% 53% 52% 33% 41% % 10% 0% 14% 7% Unchanged Increased Decreased 2007 Survey of Corporate Credit Risk Management in China 12

13 Open account : a tool to compete and expand customers portfolio 90% 81.7% More than 80% of companies interviewed are granting open accounts to face market competition 60% 30% 0% Market Competition One answer 8.3% Your clients are suffering from tight liquidity and ask for your credit facilities 4.2% 5.8% You have more confidence in your customers 3rd party risk mitigation in place 70% 60% 50% 40% 30% 20% 10% 0% 13.7% Retain existing customer base More than 60% of companies interviewed are granting open accounts to expand their customers portfolio 61.1% Enlarge existing customer base 25.3% Enhance key customer relationship 2007 Survey of Corporate Credit Risk Management in China 13

14 Duration of credit : standard payment terms More than 80% of companies interviewed are granting up to 60 days as standard payment terms 60% 50% 44.0% 50.0% % 36.0% 31.1% % 20% 13.6% 15.5% 10% 0% 3.2% 2.4% 1.4% 2.2% 0.7% 0.3% 30 Days 60 Days 90 Days 120 Days 180 Days > 180 Days 2007 Survey of Corporate Credit Risk Management in China 14

15 Duration of credit : maximum payment terms More than 70% of companies interviewed are extending maximum payment terms up to 120 days 45% 40% 40.6% 41.6% % % 25% 20% 15% 10% 5% 6.3% 4.1% 15.8% 21.3% 15.9% 15.0% 12.2% 10.1% 10.4% 7.1% 0% 30 Days 60 Days 90 Days 120 Days 180 Days > 180 Days 2007 Survey of Corporate Credit Risk Management in China 15

16 Overdue accounts per industries : maximum period Close to 70% of companies interviewed have overdue accounts up to 60 days after due date 40% 38.0% 30% 30.2% 20% 10% 13.7% 10.4% 0% Less than 30 days 2.9% 2.2% 2.6% days days days days more than 150 days None 2007 Survey of Corporate Credit Risk Management in China 16

17 Overdue accounts : between 6 months to 12 months Close to 75% of companies interviewed have up to 2% of their sales on overdue between 6 months and 12 months 60% 50% 42.2% 48.2% 40% 30% 26.9% 25.3% % 10% 13.0% 11.4% 11.4% 8.4% 8.1% 5.1% 0% < 0.5% 0.5% - 2% 2%-5% 5%-10% > 10% 2007 Survey of Corporate Credit Risk Management in China 17

18 Overdue accounts : above 12 months Close to 90% of companies interviewed have up to 2% of their sales on overdue above 12 months 80% 70% 66.0% 69.6% 60% 50% % 30% 20% 10% 0% 18.5% 16.7% 9.0% 6.3% 5.1% 4.0% 2.5% 2.2% < 0.5% 0.5% - 2% 2%-5% 5%-10% > 10% 2007 Survey of Corporate Credit Risk Management in China 18

19 Default risks : financial difficulties Close to 65% of companies interviewed consider the customers financial difficulties as the main reason for non payment 70% 60% 60.3% 63.1% 50% % 39.7% 39.3% % 20% 10% 0% Financial Difficulties Managerment chaos 19.6% 19.1% 17.6% 13.2% Commercial disputes Fraud &lack of morality 11.9% 2.4% Others Two answers 2007 Survey of Corporate Credit Risk Management in China 19

20 Default risks : difficult access to funding Close to 41% of companies interviewed consider the customers financial difficulties due to lack of funding 60% 52.3% 50% 40% 44.4% 33.7% 41.2% % % 10% 4.8% 11.0% 9.2% 3.3% 0% Fierce Competition Lack of financing resources Impact of rising raw material prices Others One answer 2007 Survey of Corporate Credit Risk Management in China 20

21 Payment behavior : concern on all types of companies Most Risky Type of Company 80% 70% 60% 50% 40% 30% 20% 10% 0% 22.5% 19.6% SOE's 65.3% 67.6% Private Companies' 3.8% 1.5% 2.3% 1.8% 6.3% 9.5% JV's WOFE's Collective Owned Company Survey of Corporate Credit Risk Management in China 21

22 IMPACT ON RISK MITIGATION STRATEGY 2007 Survey of Corporate Credit Risk Management in China 22

23 The emergence of proper credit control More than 80% of companies interviewed have implemented proper credit control procedure 90% 80% 70% 79.0% 81.2% % 50% 40% 30% 20% 10% 0% 21.0% 18.8% Yes No 2007 Survey of Corporate Credit Risk Management in China 23

24 Credit control: finance department in charge Sales Department 22.7% Others 3.6% Responsibility not clearly defined 5.4% Finance Department 50.7% Credit Management Department 17.6% 2007 Survey of Corporate Credit Risk Management in China 24

25 Opening a customer s account : origins of information More than 70% of companies interviewed are relying on on-site visits to collect information on customers 80% 70% 72% 67% 60% 50% 40% 30% 27% 38% 38% 52% 51% % 20% 10% 8% 3% 4% 4% 0% Bank Reference Information Agencies Own on-sitevisits Public information Others No Channels Multiple answers 2007 Survey of Corporate Credit Risk Management in China 25

26 Setting a customer s account : information needed Most important information needed and used per degree of importance MAX 0 Trade Reference Financial statements Bank Reference Own on-site Visits Trade record Others 2007 Survey of Corporate Credit Risk Management in China 26

27 Managing customer s account : setting the exposure Most Difficult Task with the Credit Risk Procedure in China One answer 2007 Survey of Corporate Credit Risk Management in China 27

28 Mitigating the risk : an in-house imperative Most effective ways to avoid trade credit risks 60% 55.8% 40% 20% 15.5% 20.3% 0% 2.0% 0.7% 5.7% In house expertise Credit reports & notation Credit insurance service Factoring service Outsourced invoice management Debt collection One answer 2007 Survey of Corporate Credit Risk Management in China 28

29 The most used recovery action : bargain 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 80% 70% 60% 50% 40% 30% 20% 10% 0% 85.6% 82.1% Amicable Negociation 68.1% 71.6% Amicable Negociation More than 80% use amicable negotiation as their major approach to recover overdue accounts 42.0% 36.4% Request for third party intervention More than 70% consider amicable negotiation as the most effective way to recover overdue accounts 13.2% 13.6% Request for third party intervention 12.7% 11.3% Arbitration 1.5% 1.4% Arbitration 43.5% 39.9% Court supervision procedure 13.4% 10.0% Court supervision procedure 9.2% Others 7.2% Others Multiple answers One answer 2007 Survey of Corporate Credit Risk Management in China 29 0% 0%

30 Main conclusions of the survey Open account payment terms continues to be the most popular payment terms in China due to fierce competition but more alarming the tight liquidity of the buyers. Due to limited access of financing, buyers always rely on suppliers credit to fuel the operation, which consequently forms the feature of triangular debt. No significant increase on default payment but financial difficulties of buyers remained unsolved. According to survey of a well-known audit firm, there is an increasing concern on the corporate governance and management skills of local companies and false invoices and account receivables fraud shall increase in the years to come. Although private company remains the top risky type of companies in China, concern on state-owned and collective-owned companies was growing. Respondents reveal that getting reliable information of buyers is the most difficult task in credit evaluation, and therefore they have to rely on past trading record and on-site visit. It is encouraging that more and more enterprises are aware of the importance of credit management by setting up their own in-house expertise and building a credit control department. Variety of credit management services including credit insurance, credit report debt collection and factoring are also increasingly used Survey of Corporate Credit Risk Management in China 30

31 INDUSTRY ANALYSIS MAINLAND CHINA 2007 Survey of Corporate Credit Risk Management in China 31

32 Standard terms across industries Percentage of companies per industries having 30 to 60 days as standard payment terms Paper and printing Construction Industrial machinery Household electrics and electronics Chemicals Steel Average Food and beverage Transportation Textiles 75.0% 63.6% 60.0% 57.1% 54.0% 50.0% 50.0% 42.9% 29.6% 18.2% 0% 20% 40% 60% 80% 2007 Survey of Corporate Credit Risk Management in China 32

33 Maximum payment terms across industries Percentage of companies per industries having 60 to 90 days as maximum payment terms Paper and printing Transportation Construction Chemicals Industrial machinery Average Household electrics and electronics Textiles Steel Food and beverage 58.3% 48.1% 45.5% 43.7% 43.3% 41.6% 38.1% 36.4% 29.2% 28.6% 0% 10% 20% 30% 40% 50% 60% 70% 2007 Survey of Corporate Credit Risk Management in China 33

34 Overdue accounts per industries Percentage of companies per industries having less than 2% of their total sales in overdue for more than 6 months and less than 12 months Paper and printing Household electrics and electronics Chemicals Average Construction Textiles Transportation Food and beverage Steel Industrial machinery 88.9% 86.5% 81.0% 75.1% 74.0% 73.4% 70.7% 70.0% 67.6% 64.9% 0% 20% 40% 60% 80% 100% 2007 Survey of Corporate Credit Risk Management in China 34

35 Overdue accounts per industries Percentage of companies per industries having less than 2% of their total sales in overdue for more than 12 months Paper and printing Textiles Household electrics and electronics Construction Transportation Steel Average Food and beverage Chemicals Industrial machinery 94.5% 93.3% 93.1% 92.6% 87.8% 86.5% 86.3% 85.0% 84.3% 75.5% 0% 20% 40% 60% 80% 100% 2007 Survey of Corporate Credit Risk Management in China 35

36 Overdue accounts per industries Percentage of companies per industries having overdue accounts between 30 to 60 after due date Transportation Paper and printing Food and beverage Chemicals Average Textiles Industrial machinery Construction Household electrics and electronics Steel 51.1% 45.0% 42.9% 40.8% 38.0% 37.1% 34.9% 32.3% 30.3% 29.3% 0% 10% 20% 30% 40% 50% 60% 2007 Survey of Corporate Credit Risk Management in China 36

37 Overdue accounts per industries Percentage of companies per industries having overdue accounts between 60 to 90 after due date Construction Household electrics and electronics Steel Transportation Industrial machinery Textiles Average 22.6% 21.2% 19.5% 17.8% 16.5% 14.3% 13.7% Chemicals Food and beverage Paper and printing 0% 4.8% 8.5% 0% 5% 10% 15% 20% 25% 2007 Survey of Corporate Credit Risk Management in China 37

38 Coface 2008 sectoral risk world summary A+ A Lowest risk Scale of sectoral risk : WORLD A- D C- C Clothing C+ Textiles B Air transport / Car industry - B / IT industry Building & public works B+ Telecommunications (equip.) Paper / Mechanical engineering / Mass retail / Pharmaceuticals / Chemicals Electronic components / Steel / Telecommunications (oper) Highest risk 2007 Survey of Corporate Credit Risk Management in China 38

39 Chemical Industry Rating Overview World: Evolution in Sectoral Risk Ratings Outlook Chemicals A A B+ A- A- A- Chemicals World North America Japan Western Europe Emerging Asia 2008 Forecast A- A- A A- A 2007 Survey of Corporate Credit Risk Management in China 39

40 Chemical industry in China Market Situation Strong progress China Chemicals Segments: Traditional chemicals based on coal, metal ores, salt and organic compounds Exports up Market outlook: Commodity chemicals will continue to be growth drivers in the next five to ten years period. Coface Experience Booming industry with steady growth in China Portfolio diversification, containing both end-users and traders/ distributors Larger portfolio size Payment terms offered typically in the range of days with some peaks at 90 days and above Number of buyers from 10+ to hundreds Main concerns: Payment experience stable Risk assessment/mitigation on large sized customers (manufacturers / trading companies) 2007 Survey of Corporate Credit Risk Management in China 40

41 Pharmaceuticals rating overview World: Evolution in Sectoral Risk Ratings Outlook Pharmaceuticals A+ A+ A A A- A- Pharmaceuticals World North America Japan Western Europe Emerging Asia 2008 Forecasts A- A- B+ A- A 2007 Survey of Corporate Credit Risk Management in China 41

42 Pharmaceutical industry in China Market Situation Market Size: contributes about 0.7% of GDP. SMES accelerating: grown rapidly; characterized by smallscale operations with a scattered geographical layout. Drug market: The Sino-foreign joint-ventures products account for 25% of the total sales. Coface Experience Booming industry Payment terms offered typically in the range of days Long payment terms required by some clients Main concerns: Coface experience: slow or bad payments with some large pharmaceutical groups 2007 Survey of Corporate Credit Risk Management in China 42

43 Steel rating overview World: Evolution in Sectoral Risk Ratings Outlook Steel B A A A A A Steel World North America Japan Western Europe Emerging Asia 2008 Forecasts A A A A B Survey of Corporate Credit Risk Management in China 43

44 Coface experience - Steel industry Market Situation Production rises Exports to drive the market along with mergers and acquisitions Prices continued to rise in Dec, driven mostly by cost push. China s export tax reforms Coface Experience Demand driven mainly by auto sector in local and overseas market Export driven and M & A expected Portfolio mainly containing very large end-users or traders/ distributors Larger portfolio size Payment terms offered in the range of days Longer payment terms are not unusual (60 to 90 days) Limited number of buyers Main concerns: Payment experience stable Mergers and acquisitions activities rising 2007 Survey of Corporate Credit Risk Management in China 44

45 IT rating overview World: Evolution in Sectoral Risk Ratings Outlook Information technology C+ B- B- B B- B- Information technology World North America Japan Western Europe Emerging Asia 2008 Forecasts B- B- B- B- B Survey of Corporate Credit Risk Management in China 45

46 Coface experience - IT sectors Market Situation China s IT industry maintains high growth Software sales increases Internet Hardware Coface Experience Knowledge-based economy leads to high growth Portfolio size vary Payment terms offered typically in the range of days, but payment terms up to 90 days are not unusual Number of buyers usually in hundreds Main concerns: Expertise in assessing risks on wholesalers/distributors Some payment issues mostly with distributors (small size, tight liquidity, small margins) 2007 Survey of Corporate Credit Risk Management in China 46

47 Telecom (Equipment) rating overview World: Evolution in Sectoral Risk Ratings Outlook Telecommunications B- B+ A- A- B+ B+ Telecommunications - Equipment World North America Japan Western Europe Emerging Asia 2008 Forecasts B+ B+ B+ B+ B Survey of Corporate Credit Risk Management in China 47

48 Telecommunication industry in China Market Situation Telecom operating income fuels business income growth Mobile Segment drives overall telecom industry Urban fixed telephone penetration rate drives fixed lines Coface Experience Mobile segment is the main driver of growth Non-voice business grows fast Slow down in growth of fixed line penetration Eastern region dominates Payment terms offered typically 30 days, but can reach 60 days Facing constant pressure from clients for better payment terms and/or higher credit limits Handset manufacturers tend to concentrate their risk on a limited number of regional/national distributor Main concerns: Concentration of risks Expertise in assessing risks on wholesalers/distributors 2007 Survey of Corporate Credit Risk Management in China 48

49 Textile rating overview World: Evolution in Sectoral Risk Ratings Outlook Textile C+ C+ C C C C+ Textile World North America Japan Western Europe Emerging Asia 2008 Forecasts C+ C B C A 2007 Survey of Corporate Credit Risk Management in China 49

50 Market situation in China - Textile industry Market Situation Index system for Textile Industry Export facing tough times Investment in fixed assets increase 2007 Survey of Corporate Credit Risk Management in China 50

51 Thank you! Acknowledgement to the School of Finance, Shanghai University of Finance & Economics for providing field work support to the survey Coface copyright, conditions of use : You may copy and publish the information with the consensus of Coface, provided that you do not make commercial use of it and that you indicate clearly that it originates from Coface. The information is given without guarantee and does not bind Coface in any way Survey of Corporate Credit Risk Management in China 51