Analysis of why steel trade capital chain breaks

The collapse of the steel trade crash and capital chain in 2012 led to the bankruptcy of many steel traders and also involved many banks. Steel Supply Chain Finance suffered huge losses. To trace its causes, we cannot think of several issues.

First of all, why should banks actively promote steel trade supply chain financial services?

The bank can be said to be an industry that seeks insurance from wealth and risk. It is also willing to obtain return on investment while taking risks. In theory, the higher the risk, the higher the return. Banks consider risk factors when pricing products. Therefore, the high-risk steel trade finance interest rates are much higher than those of ordinary people. If there are no mistakes, this is a highly profitable business.

At the same time, in the bank's incentive mechanism, two important points for the bank's assessment of the client manager are the deposit amount and the loan. In the steel trade supply chain, financial services will receive the first customer deposit, which means that they can obtain deposits. At the same time, due to the large demand for steel trade funds, this business can also bring in high loans. In the end, the acceptance of ** is off-balance-sheet business. It does not account for bank loan quotas, and it is the business that the bank is willing to vigorously develop.

Secondly, steel traders borrow money from banks and often need to pay very high interest rates. Under normal circumstances, the way of thinking when people apply for loans is that if 100,000 yuan can solve problems, they must not borrow 200,000 yuan, lest they have to pay more interest. But why are steel traders willing to pay a high interest rate and exceed the amount?

The rapid expansion of the steel market and the bank’s strong recommendation are inseparable. The steel trade is essentially a business model that buys steel from steel mills, then resells it to the next house, and profits from the spread. This type of business requires a lot of funds, while steel traders are mostly small and medium-sized enterprises.

In 2009, under the backdrop of the financial tsunami, commercial banks actively launched SMEs in accordance with the government's call. "Supply chain finance" as a business growth point for liquidity has gradually become a hot topic. As commercial banks actively promote services to steel traders, it is becoming easier and easier to obtain banks. Gradually, steel traders are no longer satisfied with merely engaging in trade, and steel trade has gradually become a "** platform."

For SME owners, funding is a very valuable resource. From making money through trade to turning “money into money”, it meets the dreams of many business owners. Under the temptation of huge wealth, it is no longer a burden to obtain huge amounts of money from banks.

Third, why is the steel trade bubble broken?

The "bubbles" are all commonalities. The bubble in the steel trade can not help but think of the subprime crisis in 2008. An important reason for the subprime mortgage crisis in the United States is that the object of the transaction has changed from a house to a house-backed bond to a derivative product of a home-mortgage bond. When the amount of the derivative product is much higher than the value of the target, that is, the house itself, the bubble bursts.

Similarly, in the steel trade, there is also a phenomenon that the steel is resold several times. At the same time, as the market price of steel itself goes down, the value of the steel itself becomes lower, and the income generated from the steel trade is insufficient to cover ** principal, interest and other expenses. When banks realized the risks, they tightened their tightening and further speeded the breakage of the capital chain.

Fourth, why is the bank stuck?

In steel trade supply chain finance, banks have three main management measures to control risks:

1) Steel traders must submit deposits. Before the bank receives the deposit, it will issue acceptances to the steel mills.

2) Use the steel in the warehouse as collateral.

3) Steel mills must guarantee buybacks. If steel products are unmarketable, banks will not be affected by the devaluation or slow-moving steel products.

The steel in the warehouse here is a very critical link. When steel traders and warehouses conspired, or steel traders directly invested in the purchase of warehouses and controlled the warehouse, the bank’s control gradually became ineffective.

First, steel may be resold or mortgaged several times. Secondly, there are many documents in the supply chain finance process, and each link requires the bank to inspect it carefully. However, when the records from the warehouse receipt and warehouse system indicate that the steel factory can be forged in the acceptance and seal of acceptance, the bank will be in Very passive situation. Third, due to loose control, banks have not strictly monitored the flow of **, some steel trade has been used for real estate or other investments. When these investments do not achieve the expected return, ** people are still not the principal and Interest, banks will naturally lose.